When it comes to dividend funds, one ETF stands out as the gold standard – the Schwab U.S. Dividend Equity ETF, trading under the ticker SCHD. With a 30-day SEC yield of 3.84% and an expense ratio of 0.06%, this fund has been lauded by Morningstar as one of the performers in its peer group. The fund’s 12.9% annualized return since its inception in 2011 through May 2024 beats the Russell 1000 Value but trails the Russell 1000, placing it in the ninth percentile of the large-value peer group.

The Schwab U.S. Dividend Equity ETF seeks to track the total return of the Dow Jones U.S. Dividend 100 Index. While considered a passive fund, there is an active within the index, distinguishing it from its peers that track broad market indices. The index methodology was designed with the help of Schwab, focusing on companies that have paid a dividend for 10 straight years, excluding real estate trusts.

Four screens are applied to select companies for the index. Firstly, companies are ranked by cash flow versus total debt, as well as return on equity, dividend yield, and dividend growth rate over the past five years. Each measure is equally weighted, determining the stock’s score. Once the stocks are selected, market cap weights them with a maximum position of around 4% and a sector cap of 25%.

The Schwab U.S. Dividend Equity ETF comprises a high-quality portfolio of stable stocks that have demonstrated the ability to weather market downturns while remaining competitive during market rallies. This strategy focuses on companies with healthy balance sheets that pay substantial dividends, offering investors transparency and simplicity in their investment choices.

Overall, the Schwab U.S. Dividend Equity ETF has proven to be a reliable option for investors seeking exposure to dividend-paying companies with a track record of stability and growth. With its consistent performance and low expenses, this ETF remains a standout choice in the world of dividend funds.

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