What are you looking for in your portfolio? Some investors are looking for high growth and capital appreciation. Others are looking for stability and a steady income stream of dividends. Wouldn’t it be nice if you were able to meet both of these objectives in a single asset? Enter the Schwab US Dividend Equity ETF (NYSEARCA: SCHD). In this article, we’re going to answer the question that is on everyone’s minds: is SCHD a good investment and does it deserve a spot in your portfolio? We did some research on SCHD, and here’s what we found.
SCHD is one of the better options for those seeking a combination of dividend growth and capital appreciation. Over the past five years, SCHD has provided a return of 35.71% to investors and that is not even including reinvesting the dividends. If you want a low-touch investment that will provide steady gains over time, SCHD is the perfect fit for your portfolio.
Let’s remember that investing is a personal decision. Everyone has their own investment goals, timelines, and personal financial situations. Is SCHD a good investment for you? That’s up to you to decide! Let’s take a closer look at SCHD so you can have a full idea of what this ETF is truly about!
Is SCHD a Good Investment? What is SCHD?
Let’s start with the basics: What is SCHD? SCHD is the US Dividend Equity ETF from Schwab. This fund was first introduced in October 2011 and it trades on the US-domiciled NYSEARCA exchange. For Canadian investors, this means there are some tax implications to owning SCHD. We’ll go into those details a little bit later in the article.
SCHD is an all-equity ETF which means it only holds stocks. It does not hold any fixed-income assets and it does not carry out any other trading strategies like selling covered calls for premium. Overall, SCHD is a standard, passively managed dividend growth ETF.
Read here for our article on Covered Call ETFs: High Dividends for Low Growth
Here are some key facts for SCHD as of November 6th, 2023:
|Ticker Symbol||NYSEARCA: SCHD|
|Inception Date||October 20th, 2011|
|ETF Provider||Charles Schwab Asset Management|
|Assets Under Management||$47.40 billion USD|
|Management Expense Ratio (MER)||0.06%|
|30-Day SEC Dividend Yield||3.87%|
|Number of Holdings||104|
|1-Year Fund Performance NAV||+10.51%|
As with the rest of the markets, the past year has been one of recovery for SCHD. The 1-year returns have provided a solid 10.51% gain, not including the reinvestment of dividends. So far in 2023, SCHD is down by about 3.75%. But when you zoom out over a longer time horizon, SCHD has provided an average annual return of 12.53%. That average annual return beats the performance of the benchmark S&P 500 index!
SCHD MER: Low Fees to Amplify Your Returns
One of the most important traits of an ETF to consider is how high its fees are. Why? Because over the long run, these management fees can have a direct impact on your returns. The more you have invested in an ETF the higher the fees you will have to pay every year. These fees are referred to as the Management Expense Ratio or MER. How exactly is an MER calculated? Let’s crunch some numbers to calculate exactly how much you have to pay to own SCHD in your portfolio.
The current MER of SCHD is 0.06%.
What does the MER of 0.06% mean? It means for every $10,000 you invest into SCHD, you will pay just $6.00 in fees.
You can break this down in any way you would like. For every $1,000 of SCHD, you will pay $0.60 and for every $100 of SCHD, you will pay just $0.06 in fees!
SCHD’s low MER is one of the main reasons why this ETF is so popular among investors. You are trading 0.06% in fees for an average annual performance of 12.53%. That seems like a pretty good trade-off to us!
This makes SCHD an ideal asset to hold for long-term investors who are seeking both dividend income and the growth of their initial investment. SCHD really is the best of both worlds and its low management fees are a significant part of that!
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SCHD Holdings: The Cream of the Crop for Dividend Stocks
SCHD holds 104 different dividend-paying stocks, many of which are blue-chip names and Dividend Aristocrats. This ETF does a great job of targeting dividend-paying companies that also continue to show growth in their stock prices. Here are the top ten holdings in SCHD as of November 2023:
|Stock Company Name||Stock Ticker Symbol||Weighted Allocation in SCHD|
|Verizon Communications Inc||VZ||4.38%|
|Merck & Co. Inc||MRK||4.04%|
|The Coca-Cola Company||KO||4.02%|
|Cisco Systems Inc||CSCO||3.86%|
|Home Depot Inc||HD||3.77%|
Here is the Sector Exposure for SCHD’s holdings:
|Sector Name||Weighted Allocation in SCHD|
How do you feel about SCHD’s top holdings? There are some great, long-term compounders on that list so it should come as no surprise that SCHD has some incredible returns. SCHD also holds other popular dividend growth stocks like Texas Instruments, Lockheed Martin, Blackrock, and Altria Group.
As far as sector allocation, SCHD takes a pretty balanced approach to portfolio construction. Five different sectors have more than 11.5% of the allocation in this ETF. It is nice to know that SCHD will provide you with equal exposure across a number of different industries!
SCHD Dividends: High Growth Distributions Paid Each Quarter
As its name suggests, the goal of SCHD is to collect steady dividends to exponentially grow your investment. While it does not have the ultra-high yield of ETFs like JEPI or JEPQ, SCHD provides steady and consistent dividend growth. It also provides capital appreciation which can provide even greater returns over the long run.
The current 30-day SEC yield for SCHD sits at a respectable 3.87% and is paid out on a quarterly basis. Here is the SCHD 10-year dividend growth rate according to Digrin.com:
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What does SCHD’s quarterly dividend payout equate to? The most recent dividend payout in September 2023 was about $0.6545 per share.
If you hold 100 shares of SCHD which is about $7,000 at the time of this writing, you would receive $65.45 in dividends for the first quarter.
If you hold 1,000 shares of SCHD which is about $70,000 at the time of this writing, you would receive $654.50 for the first quarter.
What does this tell us about SCHD’s dividends? On top of being a steady, quarterly payout, SCHD’s dividends will continue to rise as the price of the ETF rises. Unlike covered call ETFs which provide a high yield but little capital appreciation, SCHD increases your investment and compounds the dividend growth rate on top of that.
How is SCHD Taxed? Is SCHD a Good Investment For Canadian Investors
Since Americans can hold SCHD in tax-friendly accounts it is easy to collect dividends without having to worry about taxes.
In Canada, SCHD certainly isn’t as tax-friendly for investors. Not only do you have to pay foreign exchange in US dollars when you buy SCHD, but the dividends will be taxed no matter where you hold them. If you hold SCHD in a non-registered account, will be taxed as foreign investment income.
If you want to invest in SCHD in a registered account like your TFSA, you will still have to pay a 15% withholding tax for any US dividends. Since SCHD provides some nice capital appreciation, you will also need to pay taxes on capital gains made in non-registered accounts on your income tax. Of course, you only pay capital gains when you sell your investment.
As a Canadian investor, you will be taxed quite a bit when it comes to holding SCHD and collecting its dividends. When considering foreign investments, you should always take into account the benefits of holding these investments. SCHD can provide more growth than other assets with a cheaper MER. It might just be that holding SCHD as a Canadian investor still outweighs the benefits of holding only Canadian assets in your portfolio!
SCHD vs JEPI
What is JEPI ETF? It is one of the more popular income ETFs on the market right now. JEPI is a high-yield, covered-call ETF that holds a portfolio of safe, blue-chip stocks. The fund managers then write covered calls against these holdings and provide much of those premiums to shareholders in the form of a monthly distribution.
The current dividend yield for JEPI sits at an impressive 8.45% and paid out about $0.359 per share in November. As with most covered call ETFs, JEPI has a higher management fee and MER as the fund is actively managed. Compared to SCHD’s MER of 0.06%, JEPI’s is at 0.35%. This means that if you hold JEPI, you are paying almost six times the amount of fees you would pay if you were to hold SCHD.
JEPI has 135 holdings in its portfolio, split between stock holdings and covered call options contracts. The largest weighted stock positions in JEPI are Amazon, Adobe, and Mastercard.
So is JEPI a good investment? JEPI serves a very specific purpose in your portfolio: income. While the dividend yield is high, you cannot expect much in the way of capital appreciation. If you are a younger investor, skip JEPI and check out some investments with better long-term growth.
Check Out Our Full JEPI Review Here
SCHD vs JEPQ
What is JEPQ ETF? JEPQ is the JP Morgan NASDAQ Equity Premium Income ETF. As you might imagine, JEPQ holds 88 NASDAQ stocks including the largest tech companies in the world like Apple, Microsoft, Amazon, Alphabet, NVIDIA, Tesla, and Meta Platforms.
It has the same structure as the previously mentioned JEPI with a little more price volatility due to being heavily invested in tech and growth stocks.
JEPQ yields a monthly dividend to shareholders with a current 30-day SEC Yield of a whopping 11.76%.
This fund has the same structure and investment strategy as JEPI and shares the same 0.35% MER. Again, this makes JEPQ much more expensive to hold than SCHD over the long run.
If you are looking for the potential for more capital appreciation, JEPQ is a great way to own the best tech stocks and earn a high dividend yield.
So far in 2023, JEPQ has returned 22.78%, while SCHD has provided a loss of -3.75%.
SCHD vs VIG
VIG or the Vanguard Dividend Appreciation ETF never gets as much attention as SCHD. Perhaps this is due to the higher share price, as it is more than double the price of owning SCHD. This fund holds 315 different stocks with a focus on large-cap companies that grow their dividends each year.
Performance-wise, VIG has slightly outperformed SCHD in 2023 and over the past 52 weeks. The Vanguard dividend ETF has an identical MER of 0.06% and a current dividend yield of 1.97%.
In terms of its portfolio, VIG holds more than twice the amount of stocks as SCHD with 314. Its largest holdings are Microsoft, Apple, Exxon Mobil, and UnitedHealth Group. In terms of the quality of holdings, VIG might actually have the upper hand on SCHD.
So why don’t more people talk about VIG? For some reason, social media has tied its anchor to SCHD and not VIG. The portfolio composition of each fund is different enough that you could theoretically own both high-dividend paying ETFs.
SCHD vs VYM
What is VYM ETF? It is the Vanguard High Dividend Yield ETF, not to be confused with the previously mentioned VIG ETF. What is the difference between VIG and VYM? The portfolio composition is slightly different, with VYM holding 453 different stocks compared to VIG’s 315. Many of the holdings overlap as both funds are primarily invested in large-cap, US-listed blue-chip stocks.
VYM has an identical MER to both VIG and SCHD. This Vanguard dividend ETF pays a 30-day SEC yield of 3.40% and pays distributions on a quarterly basis. The last dividend payment was in September and was for about $0.7846 per share.
When it comes to choosing between VIG, VYM, and SCHD, it really comes down to which stocks you want to invest in. While VIG holds nearly 10% of its portfolio in Microsoft and Apple, VYM’s largest holdings are Exxon Mobil, Johnson & Johnson, and JPMorgan Chase. If you are also seeking capital appreciation, VIG might have the upper hand again due to a larger allocation to tech stocks.
SCHD vs DGRO
What is DGRO ETF? This is the iShares Core Dividend Growth ETF from Blackrock. The popular iShares dividend ETF has over $23.5 billion in assets under management, and has so far outperformed SCHD in 2023.
DGRO holds 429 different dividend-paying, US-listed stocks. Its composition is similar to VIG as Apple and Microsoft are its two largest allocations. Not surprisingly, DGRO has provided greater capital appreciation than SCHD over the years due to it capturing the growth of the two tech behemoths.
As for the current 30-day SEC yield, DGRO pays out a distribution of 2.67% which it pays out on a quarterly basis. DGRO’s MER is slightly higher than SCHD, VIG, and VYM at 0.08%. The difference over time will be minimal, but if you’re into maximizing your returns, then you will likely opt for one of the lower MER dividend ETFs.
The Bottom Line: is SCHD a Good Investment?
Here’s where your own personal investment strategy comes into play. Is SCHD a good investment? If you are seeking both capital appreciation and dividend growth, then you can’t go wrong with owning SCHD. But if you are seeking outsized returns from individual stocks then SCHD probably is not for you.
Is SCHD a good investment for Canadians? As with owning any US assets, you can be expected to pay a little extra for SCHD. Not only do you have to pay foreign exchange in US dollars to own the ETF, but you will need to pay taxes on the dividends as well. In a TFSA, SCHD’s dividends will be subject to the 15% withholding tax for US dividends.
If you are reading this SCHD ETF review, you are probably interested in creating a passive income stream that can DRIP over time. If so, then SCHD is a perfect ETF to add to your portfolio. With a bargain basement MER of just 0.06% and steady, dividend growth each year, SCHD is a dream ETF to own for any dividend investors.
As always, make sure to do your own due diligence to see if investing in SCHD makes sense for you. This article is not meant to be financial advice, but rather an introduction to what investing in SCHD can mean for you.