The market has gotten a bit more volatile in recent days, as we've endured several big red days over the past month. We can tie much of the recent uptick in volatility to uncertainty about whether the Fed will raise interest rates at its meeting later this month.
While volatility is on the rise, one group of stocks that has historically been less volatile over the long term is dividend growth stocks. That plays right into the strategy of the Schwab U.S. Dividend Equity ETF (SCHD -0.48%), which focuses on high-yielding dividend growth stocks. That investment strategy puts it in a strong position to reward patient investors over the long run.
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History says we have a clear winner
Hartford Funds and Ned Davis Research have analyzed historical return data for S&P 500 companies by dividend policy. The data shows several notable findings. Dividend stocks deliver much higher returns than non-payers and have lower volatility, with the highest returns and lowest volatility coming from dividend growers and initiators:
|
Dividend status |
Average annual total return |
Beta |
Standard Deviation |
|---|---|---|---|
|
Dividend Growers & Initiators |
10.22% |
0.89 |
15.97% |
|
Dividend Payers |
9.20% |
0.94 |
16.71% |
|
Equal-Weight S&P 500 Index |
7.74% |
1.00 |
17.55% |
|
No Change in Dividend Policy |
6.87% |
1.02 |
18.45% |
|
Dividend Non-Payers |
4.21% |
1.18 |
21.91% |
|
Dividend Cutters & Eliminators |
-0.96% |
1.22 |
24.80% |
Data source: Hartford Funds and Ned Davis Research. Note: Returns data from 1973-2025.
For those unfamiliar with the terminology, beta measures how much a stock's price moves relative to the overall market (the S&P 500 has a beta of 1.0), so a beta of less than 1.0 indicates a less volatile stock. Meanwhile, standard deviation measures how far values typically move from the mean, with a lower standard deviation meaning less volatility.
To put it simply, this historical data shows that investing in dividend growth stocks has rewarded patient investors with higher returns and lower volatility over the long term.
NYSEMKT: SCHD
Key Data Points
Focused on investing in stocks that reward patient investors
The Schwab U.S. Dividend Equity ETF has a very simple investment strategy. It passively tracks the Dow Jones U.S. Dividend 100 Index. That index focuses on companies that pay sustainable, high-quality, high-yielding dividends by screening on four quality characteristics: cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate. At its last annual reconstitution in March, the index's roughly 100 holdings had grown their dividend by a 9.4% average annual rate over the past five years.
As a result, SCHD holds the kind of durable, less-volatile dividend growth stocks showcased in data from Hartford and Ned Davis. They also tend to be stocks that deliver strong total returns over the long term. That's exactly what the historical performance data of SCHD shows. The ETF has delivered 13.4% annualized total return since its inception in 2011. While the fund's past performance doesn't automatically guarantee it will deliver similarly strong results in the future, its focus on high-quality, high-yielding dividend growers does put it in a strong position to continue delivering solid total returns over the long term.
This ETF should continue to reward patient investors
Volatility could continue to pick up this year, especially if the Fed does hike rates. That would likely be an opportune time to buy SCHD. While it's not completely immune to volatility, it should deliver strong returns with less overall volatility over the long term.
