The Schwab U.S. Dividend Equity ETF (SCHD 0.38%) has built one of the most impressive track records within the dividend exchange-traded fund (ETF) space. Its strategy, which targets companies demonstrating strong balance sheets, long histories of dividend payments, and above-average yields, is one of the most complete available for dividend income seekers.
The selection process that helps identify the best of the best has proven it can deliver for shareholders over and over.
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Why SCHD has performed so well over the years
SCHD looks at fundamental balance sheet metrics, dividend history, and current yield to narrow down a broad equity universe to just 100 qualifying stocks. Its biggest sector weightings are consumer staples (19%), healthcare (19%), and energy (17%). The fund is currently the second-best-performing U.S. dividend ETF year to date with a gain of 15.9%.
The biggest advantage of the Schwab U.S. Dividend Equity ETF is that it considers elements of dividend growth, dividend quality, and yield in its selection process. The Vanguard Dividend Appreciation ETF (VIG 0.74%), for example, considers only a stock's dividend growth track record. The Vanguard High Dividend Yield ETF (VYM 1.14%) considers only a stock's yield. Using all three dividend characteristics ensures no duds make it into the portfolio.
Not only does that work well in most market environments, it works especially well in down markets. Take 2022, for instance. That year, the Vanguard S&P 500 ETF (VOO 0.33%) fell by 18%. The Vanguard Information Technology ETF (VGT 0.06%) dropped by 30%. The Schwab U.S. Dividend Equity ETF, however, declined by only 3%. In a rising-rate, high-inflation economic slowdown, this fund mitigated downside risk and protected shareholder principal when investors needed it most.
This fund's combination of defensiveness, durability, quality, and yield makes it ideal for almost any portfolio, especially those looking to generate sustainable income.
SCHD: Performance and key metrics
| Metric | Value |
|---|---|
| Expense ratio | 0.06% |
| Inception date | Oct. 20, 2011 |
| Assets under management | $90 billion |
| Dividend yield | 3.3% |
| Year-to-date return | 15.9% |
| One-year return | 25.6% |
| Three-year annualized return | 14.8% |
| Five-year annualized return | 8.3% |
| Annualized return since inception | 13% |
Sources: Schwab Asset Management.
The fund, of course, won't work in every environment. Over the last few years, when tech stocks and the artificial intelligence trade dominated, dividend ETFs, not surprisingly, lagged the S&P 500 by a fairly significant margin. But over the decade prior to that, the Schwab U.S. Dividend Equity ETF was consistently an above-average performer in the dividend ETF category.
Its focus on defensiveness and quality makes the fund ideal for anyone seeking conservative growth and income. The 3.3% dividend yield, backed by strong fundamentals, will be very appealing to income seekers.
The Schwab U.S. Dividend Equity ETF has consistently delivered for investors over the past 15 years.
