The Schwab U.S. Dividend Equity ETF (SCHD) recently made some changes to the holdings in the ETF as part of an annual reconstitution. About a quarter of the holdings were removed and replaced with different stocks. Some of the new additions include Bristol Myers-Squibb (BMY), Hershey (HSY), Cincinnati Financial (CINF), Skyworks (SWKS), CF Industries (CF), and Dick’s Sporting Goods (DKS). Some of the companies removed include Broadcom (AVGO), Merck (MRK), Automatic Data Processing (ADP), Blackstone (BX), Illinois Tool Works (ITW), and 3M (MMM).
The following is an excerpt from an article by David Dierking on MSN.com.
As a refresher, SCHD tracks the Dow Jones U.S. Dividend 100 Index, which is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios.
screen-shot-2024-03-18-at-44857-pm© Provided by ETF Focus on The Street
It’s an investor favorite not just because of its strong track record and above average yield. It’s a favorite because it incorporates all three of the pillars of dividend investing – dividend growth, dividend quality and high yield – into its selection strategy.
Among the criteria it looks at include:
- cash flow to total debt
- return on equity
- dividend yield
- 5-year dividend growth rate
It also requires a minimum 10-year history of paying dividends, while emphasizing the highest yielding stocks among the qualifying components.
The entire article can be found at https://www.msn.com/en-us/money/other/schwab-us-dividend-equity-etf-schd-annual-reconstitution-23-new-names-hd-vz-new-in-top-10-avgo-mrk-out/ar-BB1k9VJ7
On social media, the biggest complaint about the reconstitution that I have seen is the subtraction of Broadcom (AVGO). AVGO is a great company in my opinion which is why I hold an individual position in the company in my portfolio. Unfortunately, it no longer meets the requirements to be included in SCHD, likely due to the run up in the stock price over the past year and the corresponding drop in dividend yield. Even though I like AVGO, I am okay with it being removed from SCHD.
For me, I am heavily invested in SCHD because I believe in the criteria the fund uses to select stocks. The fund has a good track record over the past 12+ years using this criteria. While SCHD is a major holding for me, it is not my only holding. I have several companies that I own individual positions in such as AVGO, MSFT and so on. I use SCHD to complement my investing strategy. I believe it will provide some stability in a down market as well as some upside in a bull market, though it will likely lag behind the S&P 500 in a bull market. This is a trade off I am willing to make for the added stability and a dividend yield that is higher than S&P 500.
Overall, I am happy with the reconstitution of SCHD and will continue to add to my position. I would like to know what your thoughts are on the SCHD reconstitution, leave a comment below.
*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.
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