The Schwab U.S. Dividend Equity ETF (SCHD) stands out as a highly regarded option in the world of dividend exchange-traded funds, boasting an impressive $63.7 billion in assets under management. This fund has recently made headlines with its significant 3-for-1 stock split that took effect on October 10, 2024. In this post, we’ll delve into the implications of this split, explore its investment appeal, and assess whether SCHD deserves a spot in your portfolio.
Understanding the SCHD ETF’s Investment Strategy
The SCHD ETF is designed to track the Dow Jones U.S. Dividend 100 Index, focusing on companies with a strong commitment to dividend sustainability and quality. Managed by Charles Schwab, the fund employs a strategy that emphasizes financial robustness, relying on key performance indicators to select stocks that can consistently deliver returns.
The Recent Stock Split: What It Means
The recent 3-for-1 split of SCHD is somewhat unusual in the ETF landscape but serves to enhance accessibility for investors. Each current SCHD share now translates into three shares, with the price adjusted to one-third of its previous value. While this split doesn’t alter the fundamental aspects or performance of the ETF, it does make it more approachable for smaller investors who may find the lower share price easier to manage. Additionally, such splits can enhance liquidity and potentially increase trading activity on the ETF’s shares.
Despite a perception that splits are reserved for overpriced stocks, SCHD was under $85 per share before the split, making the need for a split less critical compared to high-priced stocks like Nvidia or Broadcom. Nevertheless, the core value and investment strategy of SCHD remain unchanged, preserving its reputation as a solid choice for dividend investors.
A Portfolio of High-Quality Dividend Stocks
Investing in SCHD means gaining exposure to a diversified portfolio comprising 100 well-known dividend-paying stocks. Notably, the top 10 holdings make up 41% of the ETF’s assets, featuring industry leaders like Home Depot, BlackRock, and Lockheed Martin. This selection is noteworthy not only for its size but also for the strength of its components, many of which boast strong Smart Scores—TipRanks’ own rating system based on several critical market factors.
Valuation in a Competitive Market
The current landscape sees SCHD’s holdings reflecting a price-to-earnings ratio of 17.6x, a figure that undercuts the broader market benchmark, which sits at around 24.7x. This relatively attractive valuation suggests that SCHD may offer investors some downside protection compared to more volatile market segments while potentially benefiting from future upward price adjustments.
Strong Performance Metrics
Looking at the track record, SCHD has achieved respectable annualized returns of 8.2% over three years, 13.0% over five years, and 11.7% over ten years. While this may fall short compared to the rapid growth seen in technology-focused funds, it’s important to recognize the consistent returns and reliable income that SCHD provides—particularly appealing in volatile markets. Recently, SCHD has outperformed some of its growth counterparts, signaling a shift towards value investments.
Yield and Dividend Growth
One of the primary attractions of SCHD is its dividend yield, currently sitting at an appealing 3.4%—well above the S&P 500’s yield. With a track record of consistent dividend payments over the past 12 years, SCHD has also managed to grow its dividends at a compelling annual rate of roughly 12% over the last five years, thus positioning itself as a significant player in the passive income arena.
Cost-Effective Investment
A standout feature of SCHD is its remarkably low expense ratio of just 0.06%. For instance, a $10,000 investment in SCHD incurs only $6 in annual fees. This cost-efficiency further enhances the potential returns for long-term investors and showcases the fund’s commitment to maximizing shareholder value.
Analyst Outlook
Consensus ratings from Wall Street analysts classify SCHD as a “Moderate Buy,” backed by a mix of 54 buy ratings, 37 holds, and just 10 sell ratings issued in recent months. The average price target stands at $30.16, indicating a projected upside of about 5% from current trading levels.
In summary, SCHD presents a compelling case for dividend investors, characterized by an attractive yield, a diversified portfolio of high-quality dividend stocks, and an impressive expense ratio. While its recent stock split might have grabbed headlines, the true value lies in its historical performance, attractive valuation, and solid dividend growth, making it a worthy addition for those seeking both income and stability in their investment portfolios. With its potential to thrive in evolving market conditions, SCHD represents a strategic choice for investors aiming to balance risk and return effectively.