The Unusual Dividend ETF Financial Pros Picked

Our Trackstar Data ETF searches don’t change as often or as quickly as the stock data.

So, when Schwab’s US Dividend Equity ETF (SCHD) lit up our screens…well…it was odd.

Most investors aren’t super interested in dividends right now, given how much treasuries pay.

So, why was this lesser-known ETF in a niche strategy so popular?

Key Facts About SCHD

• Net assets: $49.04 billion
• 12-month trailing yield: 3.53%
• Inception: October 20, 2011
• Expense ratio: 0.06%
• Number of holdings: 102

First and foremost, Schwab’s Dividend ETF has one of the cheapest expense ratios we’ve seen – far lower than we expected at 0.06%.

But then again, that’s what they advertise.

The fund tries to mirror the Dow Jones U.S. Dividend 100™ Index, an index focused on the quality and sustainability of dividends.

Source: Schwab

Unsurprisingly, the fund leans toward large-cap blue chip companies, giving it a bias for industrials, healthcare, and financial services over technology companies.

Source: Schwab

Performance

With interest rates higher on ‘risk free’ treasury bonds, dividend stocks haven’t performed as well in the last twelve months.

Additionally, without high-growth tech companies, the fund’s performance lags the main S&P 500 index.

Source: Schwab

Competition

Financial pros offered up an interesting swath of dividend ETFs.

Many of the highest-yielding dividend funds severely underperformed, largely due to sell offs induced by the recent interest rate hikes by the Federal Reserve.

• Vanguard High Dividend Yield ETF (VYM): Similar to SCHD, Vangaguard’s high dividend ETF focuses on high quality dividend companies. However, it holds a broader assortment of companies.
• Global X SuperDividend REIT ETF (SRET): This Global X ETF invests in real estate investment trusts, which pay hefty dividends.
• Global X SuperDividend ETF (SDIV): The Global X SuperDividend ETF looks at the 100 highest yielding stocks around the world in regulated markets.
• Vanguard Dividend Appreciation ETF (VIG): Vanguard’s dividend appreciation looks for companies that have increased their dividends for 10 consecutive years or more. 

It’s interesting to see how the highest yielding dividends have performed the worst over the last 5-years. 

You would think that as a stock declines, the yield goes up, and that buying at depressed prices would yield outsized returns. Clearly, that’s not the case.

Our Opinion 10/10 

The SCHD is a quality low cost dividend ETF.

However, our comparison above delivered some interesting findings. Higher dividend paying perform worse. And the greater the dividend you seek, the worse the performance.

SCHD is the best of the group. But it’s worth questioning whether it’s worth seeking a dividend yield strategy instead of a more diversified general equity portfolio.