Why I Invest in SCHD

For those who have been following along on my journey it should come as no surprise that I like investing for dividends. Receiving dividend payments motivates me to invest more. There is just something about receiving money for doing nothing. Then I reinvest the dividends and see the amount of shares I own grow. By doing this, the future income will grow which is also motivating to me. Because I like dividends so much, it makes sense that the largest position in my accounts is the Schwab U.S. Dividend Equity ETF (SCHD). In this post I will explain in detail why I invest in SCHD.

Let’s start out with the objective of the fund. Per the Charles Schwab website:

Objective

The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100™ Index.

Highlights
  • A straightforward, low-cost fund offering potential tax-efficiency 
  • The Fund can serve as part of the core or complement in a diversified portfolio
  • Tracks an index focused on the quality and sustainability of dividends 
  • Invests in stocks selected for fundamental strength relative to their peers, based on financial ratios

The inception date for SCHD is 10/20/2011. The fund has almost $28B in total net assets. It has a low expense ratio of 0.06%. It is consider a large value fund by Morningstar. The fund is passively managed, hence the low expense ratio. It has roughly 100 holdings. It pays a quarterly distribution. The distribution yield at the time of this writing is around 2.85%.

Let’s take a look at the top ten holdings as listed on the Charles Schwab website:

Top Holdings

As of Market Open 08/27/2021  Export All HoldingsView All Holdings

SymbolNamePercent of Assets (%)Market Value
PFEPFIZER INC COMMON STOCK USD.05$1.3B
CSCOCISCO SYSTEMS INC COMMON STOCK USD.001$1.2B
BLKBLACKROCK INC COMMON STOCK USD.01$1.2B
PEPPEPSICO INC COMMON STOCK USD.017$1.2B
AVGOBROADCOM INC COMMON STOCK$1.2B
HDHOME DEPOT INC COMMON STOCK USD.05$1.2B
MRKMERCK + CO. INC. COMMON STOCK USD.5$1.1B
TXNTEXAS INSTRUMENTS INC COMMON STOCK USD1.0$1.1B
KOCOCA COLA CO/THE COMMON STOCK USD.25$1.1B
VZVERIZON COMMUNICATIONS INC COMMON STOCK USD.1$1.1B

As you can see above, the fund invests in some quality companies. The above chart was taken from the Charles Schwab website and unfortunately, it does not show a percentage for each holding. According to Yahoo Finance, the top ten positions account for just over 40% of the fund. Each position in the top ten is roughly 4% of the fund. Let’s look at how the allocations are broken down by sector.

Sectors

06/30/2021

SectorPercent of Portfolio (%)
Financials21.38%
Information Technology20.52%
Industrials14.05%
Consumer Staples14.04%
Health Care12.62%
Consumer Discretionary6.83%
Communication Services4.96%
Materials3.74%
Energy1.87%
Allocations are subject to change

One interesting note, at least to me, is that the fund provides a market beating yield without relying heavily on the Energy Sector to boost its yield.

SCHD has been growing its dividend for 9 years with a 5 year growth rate of 13.02% according to Seeking Alpha. This makes this fund a good fit for those looking for dividend growth. It has consistently raised its dividend and has done so at what I would consider as a very high rate. This is an investment that will compound well over years.

Now let’s see how SCHD compares to some other investments. Using portfoliovisualizer.com I compared SCHD to the SPDR S&P 500 ETF (SPY) and the Vanguard High Dividend Yield ETF (VYM).

Performance Summary

PortfolioInitial BalanceFinal BalanceCAGRStdevBest YearWorst YearMax. DrawdownSharpe RatioSortino RatioUS Mkt Correlation
Schwab US Dividend Equity ETF$10,000$39,834 15.23% 12.86%32.89%-5.56%-21.54% 1.121.890.93
Vanguard High Dividend Yield ETF$10,000$32,741 12.94% 12.39%30.08%-5.91%-23.98% 1.001.570.93
SPDR S&P 500 ETF Trust$10,000$42,328 15.95% 12.88%32.31%-4.56%-19.43% 1.171.921.00
portfoliovisualizer.com

As you can in the graph and table above, SPY beat both SCHD and VYM. SCHD did manage to remain pretty close to SPY with both having a CAGR over 15%. It performed much better than VYM.

For me, SCHD is a great investment. It aligns well with my goals. The companies it invests in are high quality companies. The distributions are above the market average. While it does underperform against the S&P 500 it is not by much. I am trying to build up income for retirement in less than 10 years. This fund will allow me to do that. It provides a nice balance of dividends that grow as well as some capital appreciation. Is SCHD a good investment for you? I don’t know. That is a question that you have to answer for yourself. I am a big believer that personal finance is personal. Everyone should establish their own plan based on their goals. I hope this provided some insight into why I invest in SCHD and why it is my largest position. As always, thanks for following along!

*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence or consider seeking the advice of a financial and/or tax professional.

Here are some of the businesses that I use that I thought some of you might be interested in.

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I use the free version on trackyourdividends.com. This is a quick an easy way for me to track my estimated annual income from dividends.

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Lolli has a variety of stores that it is affiliated with and offers rewards for shopping at these stores. I use Lolli when I shop on Chewy and I get bitcoin as a reward. Who doesn’t want free bitcoin! If you are interested in Lolli and want to help support the blog here is my referral link: https://www.lolli.com/share/XP7gxDgqC4

This image has an empty alt attribute; its file name is 2021-02-28-m1-logo.png
https://m1.finance/ktIiFeOI5zDr

I use M1 Finance for my taxable growth account. M1 Finance offers promotions for signing up. At the time of writing this post, the promotion is for $50. These promotions vary from time to time but is usually a $10 bonus. If you are interested M1 Finance and want to support the blog here is my referral link: https://m1.finance/ktIiFeOI5zDr

If you use the referral links listed above I could receive compensation. Please take the time to read the terms and conditions before signing up.

Published by Bill

I am just a blue collar factory worker trying to reach financial independence by spending less, earning more, saving and investing.

One thought on “Why I Invest in SCHD

  1. SCHD has always been my favorite dividend ETF. Compared to other dividend ETFs it is always in the top 3 when looking at total return, dividend growth, expense fees, and size. Though I wouldn’t sell VYM short as it is my #2 favorite as it also has a very good dividend growth history.

    The other feature I like about SCHD is it is not tech heavy.

    Liked by 1 person

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