Get Paid While You Wait 💸 - Why SCHD Belongs in Your Portfolio

A hearty welcome to all our ETF UNO readers! Whether you're a seasoned investor or just starting out, you know the importance of reliable income. Today, we'll highlight an ETF that delivers exactly that - stable, growing dividend payments you can count on.

With hundreds of dividend ETFs on the market, it's a challenge to find one that truly stands out. Many make lofty yield promises but fail to deliver. Others have wavering dividend tracks records. But our pick today, the Schwab US Dividend Equity ETF (SCHD), offers an alluring mix of generous yield, dividend growth, and consistency that makes it a core holding candidate.

In this article, we'll explore why SCHD should be on every dividend investor's short list and how it stands out from the crowded field of dividend ETFs. Let's dive in!

What is SCHD?

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which contains 100 high dividend-yielding U.S. stocks that have sustained strong dividend payment records and growth. To be included in the index, stocks must meet certain criteria related to dividend pay-out ratios and records, trading volume, and financial viability.

The result is a portfolio of financially healthy, established U.S. companies with durable competitive advantages and shareholder-friendly management teams committed to consistent dividend payments. SCHD is diversified across sectors, providing broad exposure to dividend payers in areas like consumer staples, industrials, financials, and healthcare.

Why Dividends in Inflationary Times? 💰

With prices rising at their fastest pace in decades, many investors are feeling anxious about how to generate stable income from their portfolios. Fixed interest rates just don't offer the protection they once did. But there is a tried and tested solution that shrewd investors have relied on during bouts of high inflation: dividend stocks.💪

More than just chance offerings when times are good, dividends allow investors to tap into the relatively steady profits of mature, well-run companies. While stock prices gyrate wildly, dividends act as anchor, preserving their buying power over time. Investors who focus on blue chip stocks with long histories of dividend growth can expect to maintain their standard of living even when everything seems to be getting more expensive. In inflationary times, dividends transform volatile equities into stable sources of cash flow. With prices expected to rise sharply this year, dividends deserve a central place in every investor's portfolio.🛡️

🤝A Trusted Name in Investing Since 1973 - Charles Schwab

The SCHD ETF is managed by Charles Schwab Asset Management. As we covered in the US broker article, Charles Schwab has been providing financial services and advice to clients for nearly 50 years. Founded in 1973 by Charles R. Schwab, it started as a traditional brokerage firm focused on individual investors. Over time, the company evolved into a full-service financial institution offering banking and wealth management alongside its brokerage services.

Today, Charles Schwab provides investing, trading, banking, and financial advisory solutions to over 32 million accounts. It prides itself on a customer-first approach that promotes financial empowerment. The company offers guidance and resources designed to help clients set and achieve their unique financial goals.

With its long history and continued focus on providing clients with a wide range of financial products and advice, Charles Schwab has established itself as one of the most trusted brands in the investing world. Its emphasis on transparency, ethical business practices, and putting "clients first" make it a reliable partner for managing one's finances.

SCHD at a glance

Asset Class: Equity

Underlying Index: Dow Jones U.S. Dividend 100 Index

Geographical Focus: U.S. (with international exposure due to multinational companies)

Sector Focus: All major sectors

Expense Ratio: 0.06% (as of last data point)

Dividend Yield: 3.70% (as of last data point)

Distribution Frequency: Quarterly

Historical Performance

With its impressive track record of steady dividend growth and market-beating returns, SCHD has emerged as a standout option for investors seeking income and appreciation.

Over the past 5 years, SCHD has handily outperformed the broader market, delivering an average annual return of more than 10%. This remarkable outperformance demonstrates SCHD's winning strategy of focusing on high-quality companies with durable competitive advantages and consistent dividend growth.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest in SCHD

1. Reliable Dividend Income: SCHD focuses on companies with a strong record of paying dividends, which can provide a consistent income stream. This is particularly attractive for retirees or those seeking stable, passive income.

2. Quality Selection Criteria: The ETF selects companies based on factors such as cash flow to debt ratio, return on equity, dividend yield, and consistent dividend payouts. This quality-oriented approach targets financially healthy companies, potentially leading to lower volatility and better risk-adjusted returns.

3. Low Expense Ratio: With a low expense ratio, SCHD offers a cost-effective way to gain exposure to a diversified portfolio of dividend-paying stocks. This can help maximize returns since lower fees mean less erosion of investment gains over time.

Top 3 Reasons Not to Invest in SCHD

1. Sector Concentration Risk: SCHD may have significant exposure to certain sectors, like consumer staples or industrials, which could impact performance if those sectors underperform. This concentration can increase risk if the sectors SCHD is heavy in face economic challenges.

2. Interest Rate Sensitivity: Dividend-paying stocks can be sensitive to changes in interest rates. If rates rise, these stocks may decline in value as investors seek out higher-yielding investments, potentially leading to capital losses for SCHD shareholders.

3. Underperformance in Growth Markets: In market environments where growth stocks outperform, SCHD might lag because it is focused on dividend-paying (often more value-oriented) stocks. Investors looking for high growth rather than income might find SCHD's approach too conservative.

🚀 SCHD for the Long-Term Journey

In conclusion, the Schwab US Dividend Equity ETF (SCHD) is an excellent option for investors seeking reliable dividend income. With its diversified portfolio of high-quality stocks with growing dividends, SCHD provides stability and long-term growth potential. Instead of chasing unsustainable high yields, SCHD focuses on dividend growth and consistency.

Its low fees and disciplined methodology also make it an appealing core holding for the long-term. For investors looking to generate steady dividend income along with market-beating total returns over time, SCHD is hard to beat. Rather than quick fixes, it offers a prudent way to achieve long-term goals. So, dear investors, may your portfolios burgeon with the bountiful dividends SCHD aims to deliver!

We all know that the investment seas are vast and varied. We're here to guide you through the myriad of ETF options, with SCHD being just one vessel in an armada of choices that can lead to a prosperous investment journey. Set sail with confidence, and let dividends be the wind in your investment sails!

DISCLAIMER: This newsletter is for educational purposes only and does not constitute financial advice.