Beginners can benefit from a dividend ETF like the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) a cornerstone of their portfolios.
Dividend stocks are attractive not only because of the passive income they offer, but also because they tend to be profitable, high-quality companies. An ETF like the Schwab US Dividend Equity ETF gives investors broad exposure to 100 of the highest dividend-paying stocks in the United States, giving a portfolio instant diversification and income, all with a low expense ratio of 0.06%. Even seasoned investors with large portfolios can benefit from adding SCHD to their portfolios to easily gain exposure to a broad range of top quality US dividend stocks.
In addition, dividend stocks can help strengthen your own portfolio in a challenging market environment. For example, in 2022 the S&P 500 (SPX) and Nasdaq 100 (NDX) fell 19.6% and 33.5%, respectively. Meanwhile, SCHD fared much better thanks to its portfolio of stable, defensive, dividend-paying companies, down just 3.2%.
What is SCHD ETF exactly?
SCHD is a low-fee dividend ETF by Charles Schwab (NYSE: SW). With $47 billion in assets under management (AUM), it’s one of the largest and most popular dividend ETFs in the stock market today. SCHD aims to replicate as closely as possible the return of the Dow Jones US Dividend 100 Index before fees and expenses. SCHD is appealing in that it has a very low expense ratio of 0.06% and currently yields 3.4% — more than double the average return for the S&P 500.
SCHD not only boasts an attractive yield today, but the ETF has increased its payout for 10 straight years and has grown its dividend payout at an impressive compound annual growth rate (CAGR) of 13.7% over the past five years.
SCHD is flat so far in 2023 and is lagging the broader market but has outperformed it over the past year, up 3.6%. SCHD has returned 73% over the past five years and 137% over the past ten years. Additionally, SCHD has achieved an impressive 186% return since its inception in 2011.
SCHD stocks
This $47 billion ETF is well-diversified with 101 holdings, with the top 10 accounting for 40.3% of assets. SCHD’s top holdings list is populated by large, well-known US dividend stocks that will be familiar to most investors, such as Verizon (NYSE:VZ), Coke (NYSE: KO), Pepsi (NASDAQ:PEP) and home depot (NYSE:HD).
Consumer goods giants like Coca-Cola and Pepsi are great building blocks for a dividend fund, since these dividend kings have increased their annual dividend payouts for 50 and 60 straight years, respectively. Though Verizon’s stock price has plummeted in recent years, the stock is yielding nearly 7% and the company has increased its dividend payout for 18 straight years.
Interestingly, there is some semiconductor perspective here, with Broadcom leading the way (NASDAQ:AVGO) and the fourth largest holding Texas Instruments (NASDAQ:TXN), both representing the chip industry.
I like that these names offer additional upside and not only offer attractive dividend yields but are also great dividend growth stocks. For example, Texas Instruments has increased its dividend payout for 19 straight years, growing it to a stellar CAGR of 25% over that period. Meanwhile, Broadcom has posted 11 straight years of dividend growth, and the payout shows a five-year growth rate of 28.6%.
Other top 10 technology holdings include IBM (NYSE:IBM) and Cisco (NASDAQ:CSCO).
Below is an overview of SCHD’s top stocks. Stocks like Broadcom, Verizon, Texas Instruments, Home Depot and Blackrock (NYSE: BLACK) all have TipRanks Smart Scores of 8 or higher. The Smart Score is our proprietary quantitative stock scoring system that ranks stocks based on eight different market factors, such as: Stocks with a Smart Score of 8 or higher receive Outperform ratings.
What is the target price for SCHD stock?
The analyst community is somewhat divided on their outlook for SCHD. Of the ETF’s 732 ratings, 38.5% are buy, 48.1% hold, and 13.4% sell. Despite this “Hold” consensus rating, the average SCHD share price target of $82.87 still implies 11% upside potential from current prices.
TipRanks uses proprietary technology to create analyst forecasts and price targets for ETFs based on a combination of the individual performance of the underlying assets. Investors can use the Analyst Forecast tool to view the consensus target price and rating for an ETF, as well as the high and low target price.
TipRanks calculates a weighted average based on combining all ETF holdings. The average price prediction for an ETF is calculated by multiplying the target price of each individual holding by its weighting within the ETF and summing it 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 upbeat, while hedge fund involvement is increasing.
take that away
The Schwab US Dividend Equity ETF gives investors access to a great collection of top-rated US 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, such as Broadcom, Texas Instruments, Coca-Cola, and Pepsi. Companies that are increasing their annual dividend payouts are the types of names you’ll want to own in your portfolio, as it means they’re also likely to grow their earnings and cash flow, and their stock prices are likely to rise over the long term, too.
In summary, the Schwab US Dividend Equity ETF appears to be a great option for investors who are just starting out in building their portfolio, and it’s also a good option for experienced investors to bolster their passive income and add diversification for a small fee . SCHD’s impressive long-term track record reinforces its appeal as an ETF that can serve as a key building block for your portfolio.
One strategy I like to use for an ETF like this is to reinvest the dividends (if you don’t already need the income) to grow your position over time while using the dollar cost average to position the position add to if the ETF’s price falls. This allows investors to increase their holdings and “real return” at a cost. Additionally, the actual payout itself should continue to increase over time, making this an even more attractive core holding.
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