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
| Symbol | Name | Percent of Assets (%) | Market Value |
|---|---|---|---|
| PFE | PFIZER INC COMMON STOCK USD.05 | — | $1.3B |
| CSCO | CISCO SYSTEMS INC COMMON STOCK USD.001 | — | $1.2B |
| BLK | BLACKROCK INC COMMON STOCK USD.01 | — | $1.2B |
| PEP | PEPSICO INC COMMON STOCK USD.017 | — | $1.2B |
| AVGO | BROADCOM INC COMMON STOCK | — | $1.2B |
| HD | HOME DEPOT INC COMMON STOCK USD.05 | — | $1.2B |
| MRK | MERCK + CO. INC. COMMON STOCK USD.5 | — | $1.1B |
| TXN | TEXAS INSTRUMENTS INC COMMON STOCK USD1.0 | — | $1.1B |
| KO | COCA COLA CO/THE COMMON STOCK USD.25 | — | $1.1B |
| VZ | VERIZON 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
| Sector | Percent of Portfolio (%) |
|---|---|
| Financials | 21.38% |
| Information Technology | 20.52% |
| Industrials | 14.05% |
| Consumer Staples | 14.04% |
| Health Care | 12.62% |
| Consumer Discretionary | 6.83% |
| Communication Services | 4.96% |
| Materials | 3.74% |
| Energy | 1.87% |
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
| Portfolio | Initial Balance | Final Balance | CAGR | Stdev | Best Year | Worst Year | Max. Drawdown | Sharpe Ratio | Sortino Ratio | US Mkt Correlation |
|---|---|---|---|---|---|---|---|---|---|---|
| Schwab US Dividend Equity ETF | $10,000 | $39,834 | 15.23% | 12.86% | 32.89% | -5.56% | -21.54% | 1.12 | 1.89 | 0.93 |
| Vanguard High Dividend Yield ETF | $10,000 | $32,741 | 12.94% | 12.39% | 30.08% | -5.91% | -23.98% | 1.00 | 1.57 | 0.93 |
| SPDR S&P 500 ETF Trust | $10,000 | $42,328 | 15.95% | 12.88% | 32.31% | -4.56% | -19.43% | 1.17 | 1.92 | 1.00 |
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.
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.
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
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.
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.