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.