Schwab U.S. Dividend Equity ETF (NYSE: SCHD) aims to track the Dow Jones U.S. Dividend 100™ Index total returns before expenses and fees as closely as possible. The ETF primarily invests in many stocks in the index to achieve its goal.
The ETF is dividend-focused, which aligns perfectly with the index, which tracks US firms with a consistent dividend payout record. It has invested around 90% of its net assets in stocks listed on the index.
Composition of the ETF Fund
The Schwab U.S. Dividend Equity ETF has several high-value stocks in it. They include Chevron (CVX), Verizon Communications (VZ), and Coca-Cola (KO), which are favorites of various portfolios managed by leading Wall Street investors like Warren Buffet.
The fund issues dividends every three months. Its best performance in the past ten years was in December 2016, with a dividend yield of 46.85%. The ETF has a dividend yield of 3.85%, much higher than the industry average of 1.661%. It also has an impressive Payout Ratio of 49.68%.
The fund currently has 106 holdings of high-quality stock. Quality is determined using various aspects heavily weighted to a stock’s economic moat. Stock such as Home Depot (HD) and PepsiCo (PEP) are renowned for their moats.
The Positive Aspects of the ETF
One of the positive aspects is its P/E ratio of 13.62, which is reasonable in a market where long-term treasuries yield 4.4%. Consequently, analysts now give the fund a moderate buy rating.
Another great aspect of the fund is the passive management style, long-preferred by dividend investors. Its 30-day SEC yield is also relatively high at 3.78%. Other noteworthy figures include:
- An expense ratio of 0.06.
- A bid-ask spread of 0.01%.
- A beta coefficient of 1.0.
- A Price/Cash Flow ratio of 8.32.
Based on these positive characteristics, SCHD is a fund worth investing in. It comes with low multiples and fees and a tight bid-ask spread. Consequently, investors will have an inexpensive dividend portfolio at a low fee.
Schwab U.S. Dividend Equity ETF (SCHD) Stock Performance
As of the close of trading on November 24, 2023, the stock was up 0.38%, trading at $71.80 per share. In the past six months, the stock has been up 2.32%. However, it is down 4.83% year-to-date.
Why SCHD Has a Buy Rating
In 2022, SCHD stock had a hold rating. A major reason for this was its holdings were relatively pricey at the time. Towards the end of 2022, its P/E ratio stood at 16.6, similar to the S&P 500. Consequently, many investors saw no significant advantage in investing in the ETF.
However, the market conditions have since changed. SCHD is currently trading at 13.62 time earnings. Additionally, the S&P 500 has a P/E ratio of 20.37, according to the Wall Street Journal. Consequently, SCHD is many times more attractive to investors than a year ago. Another point is that individual holdings have dropped some of their value.
For instance, Verizon stock, the second largest holding in the ETF, has a P/B ratio of 1.61. It is one of the lowest valuations for a major stock. Combined with the recent inflation report, which suggested a pause in rate hikes, the current moderate buy rating is accurate.
Should You Invest in the Schwab U.S. Dividend Equity ETF?
The falling unit price has made SCHD an appealing ETF fund. If you want value and income potential, SCHD is an excellent option. With a yield nearing 4% and inflation under control for the first time in years, investing in the ETF is a reasonable move right now.
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