Dividend investors aren't necessarily seeking the highest total returns. A combination of growth and income, often used to pay living expenses in retirement, is generally the desired outcome. If that sounds like what you are looking for, then you'll want to get to know Schwab U.S. Dividend Equity ETF (SCHD 0.50%).
The big story with Schwab U.S. Dividend Equity ETF
Take a look at the chart below before diving into the details of how Schwab U.S. Dividend Equity ETF achieves its results. Although the price line and the dividend line are jagged, they have both headed generally higher over time. That basically means that dividend investors have been rewarded with increases in both their capital and the income stream they collect.
Add in a dividend yield that has long been higher than that of the S&P 500 index (^GSPC +1.18%), and you can see why dividend lovers would appreciate owning Schwab U.S. Dividend Equity ETF. Right now, the ETF's yield is 3.3%, which is three times higher than the 1.1% yield of the S&P 500. And the cost is a tiny 0.06% expense ratio, making owning the ETF very reasonable.
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How does Schwab U.S. Dividend Equity ETF do it?
Basically, the ETF uses a formula. It creates a composite score that includes cash flow-to-total debt, return on equity, dividend yield, and a company's five-year dividend growth rate for all companies with at least 10 years of annual dividend increases. The 100 companies with the highest scores are included in the ETF using a market-cap-weighted methodology. Once a year, the process is repeated to reset the portfolio.
Basically, Schwab U.S. Dividend Equity ETF seeks to own financially strong, growing businesses with sizable, rising dividends. That's likely what most dividend investors would want to buy, too, if they bought individual stocks. If you are looking to simplify your dividend investing life, this ETF's history of higher prices and higher dividends could be exactly what you need in your portfolio. And because the portfolio is updated annually, you know you'll always own a portfolio of attractive dividend stocks.
The one caveat to keep in mind if you buy this ETF is that Schwab U.S. Dividend Equity ETF's total return likely won't keep up with the S&P 500 index. However, that may not be the most appropriate yardstick for investors trying to supplement their social security checks with dividends.
