Investors who are starting out can benefit from making a dividend ETF like the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) a cornerstone of their portfolios.
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Dividend stocks are appealing not only for the passive income they provide but also because they are typically profitable, high-quality companies. An ETF like the Schwab U.S. Dividend Equity ETF gives an investor broad exposure to 100 of the top dividend-paying stocks in the United States, giving a portfolio instant diversification and income, all for a low expense ratio of 0.06%. Even experienced investors with large portfolios can benefit from adding SCHD to their portfolios to easily gain exposure to a wide array of top U.S. dividend stocks.
Furthermore, dividend stocks can help to bolster one’s portfolio during a challenging market environment. For example, in 2022, the S&P 500 (SPX) and Nasdaq 100 (NDX) fell by 19.6% and 33.5%, respectively. Meanwhile, SCHD held up much better, with a loss of just 3.2%, thanks to its portfolio of stable, defensive, dividend-paying companies.
What is SCHD ETF Exactly?
SCHD is a low-fee dividend ETF from Charles Schwab. With $47 billion in assets under management (AUM), it is one of the largest and most popular dividend ETFs in the stock market today. SCHD’s objective is to track the return of the Dow Jones U.S. Dividend 100 Index as closely as possible, before fees and expenses. SCHD is appealing in that it features a very low 0.06% expense ratio, and it currently yields 3.4% — more than double the average yield for the S&P 500.
Not only does SCHD feature an attractive yield today, but the ETF has increased its payout for 10 years in a row, and it has been growing its dividend payout at an impressive 13.7% compound annual growth rate (CAGR) over the past five years.
SCHD is flat so far in 2023, lagging the broader market, but it has outperformed it in the past year, gaining 3.6%. Over the past five years, SCHD has returned 73%, and over the past decade, it boasts a 137% return. Further, since its inception in 2011, SCHD has returned an impressive 186%.
SCHD’s Holdings
This $47 billion ETF is well diversified, having 101 holdings, with the top 10 making up 40.3% of assets. SCHD’s top holdings list is populated by large, well-known U.S. dividend stocks that will be familiar to most investors, like Verizon (NYSE:VZ), Coca-Cola (NYSE:KO), Pepsi (NASDAQ:PEP) and Home Depot (NYSE:HD).
Consumer staples giants like Coca-Cola and Pepsi are great building blocks for a dividend fund, as these Dividend Kings have increased their annual dividend payouts for 50 and 60 years in a row, respectively. Also, while Verizon’s stock price has slumped over the past few years, the stock yields nearly 7%, and the company has increased its dividend payout for 18 consecutive years.
Interestingly, there’s a bit of a semiconductor angle here, with top-holding Broadcom (NASDAQ:AVGO) and fourth-largest-holding Texas Instruments (NASDAQ:TXN) both representing the chip industry.
I like that these names bring some added upside, and not only do they feature attractive dividend yields, but they are also great dividend-growth stocks. For example, Texas Instruments has increased its dividend payout for 19 straight years and grown it at a stellar 25% CAGR over this time frame. Meanwhile, Broadcom has posted 11 straight years of dividend growth, and the payout has a five-year growth rate of 28.6%.
Other top 10 holdings from within the tech sector include IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO).
Below is an overview of SCHD’s top holdings. Stocks like Broadcom, Verizon, Texas Instruments, Home Depot, and Blackrock (NYSE:BLK) all feature TipRanks Smart Scores of 8 or higher. The Smart Score is our proprietary quantitative stock scoring system that ranks stocks on eight different market factors, such as Wall Street analyst ratings, technicals, and fundamentals. Stocks with a Smart Score of 8 or above receive “Outperform” ratings.
What is the Price Target for SCHD?
The analyst community is somewhat divided in its outlook for SCHD. Of the 732 ratings on the ETF, 38.5% are Buys, 48.1% are Holds, and 13.4% are Sells. Despite this Hold consensus rating, the average SCHD price target of $82.87 still implies upside potential of 11% from current prices.
TipRanks uses proprietary technology to compile analyst forecasts and price targets for ETFs based on a combination of the individual performances of the underlying assets. By using the Analyst Forecast tool, investors can see the consensus price target and rating for an ETF, as well as the highest and lowest price targets.
TipRanks calculates a weighted average based on the combination of all the ETFs’ holdings. The average price forecast for an ETF is calculated by multiplying each individual holding’s price target by its weighting within the ETF and adding them all up.
SCHD has an ETF Smart Score of 7 out of 10 and looks attractive based on a number of other indicators that TipRanks tracks. Crowd wisdom and blogger sentiment are both bullish, while hedge fund involvement is increasing.
The Takeaway
The Schwab U.S. Dividend Equity ETF gives investors access to a great collection of blue-chip U.S. dividend stocks and an attractive dividend yield for a negligible fee.
This ETF is steadily increasing its annual payout, as are many of its top holdings like Broadcom, Texas Instruments, Coca-Cola, and Pepsi. Companies that are growing their annual dividend payouts are the types of names you want to own in your portfolio because this means they are also likely increasing their profits and cash flow, and their stock prices are probably rising over the long run as well.
In conclusion, the Schwab U.S. Dividend Equity ETF looks like a great way for investors who are just beginning their investing journeys to start building their portfolios, and it’s also a good option for experienced investors to bolster their passive income and add diversification with a low fee. SCHD’s impressive long-term track record further bolsters its appeal as an ETF that can serve as a key building block for your portfolio.
One strategy that I like to employ for an ETF like this is to reinvest the dividends (if you don’t need the income yet) to increase one’s position over time while using dollar cost averaging to add to the position when the ETF’s price is down. By doing this, investors can increase their holdings and their “real yield” on cost. Furthermore, the actual payout itself should continue to increase over time, making this an even more appealing core holding.
