Is the Schwab US Dividend Equity ETF (SCHD) a Smart Buy for Dividend Investors?

The Schwab US Dividend Equity ETF (SCHD) has gathered nearly $68 billion in assets, highlighting its strong popularity among investors. But, as history has shown with various investment fads, what's popular isn't always the best choice for your portfolio. So, is SCHD truly a smart pick, or should investors be cautious?

What Is the Schwab US Dividend Equity ETF?

SCHD is an exchange-traded fund that allows investors to pool their money together under professional management, similar to a mutual fund. Unlike mutual funds, though, ETFs such as SCHD trade throughout the day on stock exchanges, providing greater flexibility.

There are two main types of ETFs: actively managed and index-tracking. SCHD tracks the Dow Jones U.S. Dividend 100 Index, which is designed with a focus on quality and consistent dividend growth. Here’s how the index works:

• Eligibility: Companies must have raised their dividends for at least 10 consecutive years.
• Exclusions: Real estate investment trusts (REITs) are not included.
• Scoring: Each stock is given a composite score based on cash flow to total return, return on equity, dividend yield, and five-year dividend growth rate.
• Selection: The top 100 stocks by composite score are added to the index, weighted by market capitalization.

This approach aims to offer investors high-quality dividend growth stocks with a natural bias toward higher yields. With an expense ratio of just 0.06%, SCHD provides a cost-effective way to invest. Additionally, it currently offers a nearly 4% dividend yield, which stands out compared to the S&P 500's roughly 1.2% yield.

SCHD’s Performance: What Can Investors Expect?

The main goal of SCHD is to provide access to reliable, growing dividend income, making it especially appealing to dividend-focused investors. While SCHD has not matched the total return or price gains of the S&P 500 over time, its focus is slightly different.

Many dividend investors care less about maximizing total return, and more about generating a consistent and growing income stream paired with steady capital growth. Over the past decade, SCHD's share price has doubled, and its dividend payments have climbed as well. Factoring in the roughly 4% yield, SCHD offers a compelling profile for those seeking income.

One important feature is SCHD’s annual rebalancing. Each year, it refreshes its portfolio according to its rules, potentially improving the quality of its holdings over time. This makes SCHD a relatively hands-off, “set-it-and-forget-it” investment option.

Bottom Line: Should You Consider SCHD?

Ultimately, investing in SCHD means buying into its robust dividend-focused strategy. While it may not deliver the same overall returns as an S&P 500 index fund, SCHD provides an attractive blend of reliable income and moderate growth — all with minimal fees. For investors prioritizing dividend yield and stability over maximum capital appreciation, SCHD remains a strong option today.

This content is for informational purposes only and does not constitute financial advice.