Followers of Warren Buffett, of which there are plenty, know the advantages of investing in companies with nearly unassailable competitive moats.
Wide moat investing has become such a phenomenon that some issuers of exchange traded funds have seized upon that momentum with products specifically geared to the wide moat concept. Just look at the Market Vectors Wide Moat ETF (NYSEArca: MOAT). MOAT debuted in April 2012. Today, it is an almost $800 million ETF hitting an all-time high. [Wide Moat ETF Delivers Performance and Growth]
Investors can also tap into the wide moat theme with select dividend ETFs, including the Schwab US Dividend Equity ETF (NYSEArca: SCHD). Like MOAT, SCHD is no stranger to growth in short order. The Schwab offering will celebrate its third anniversary in October and entered Tuesday’s session with $2 billion in assets under management. At this writing, SCHD resides less than 20 cents below its all-time high.
SCHD has made a name for itself not only by way of its scant 0.07% annual expense ratio, which makes it the least expensive U.S. dividend ETF, but also by virtue of its high-quality holdings. SCHD’s top-10 holdings include Dow components Procter & Gamble (NYSE: PG) and Coca-Cola (NYSE: KO), two constituents in MOAT, as well.
SCHD is home to 102 holdings in all, many of which are “the sort of high-quality large cap issues that participate plenty on the upside, but also have the nice habit of holding on better when the markets correct,” notes Carla Fried for YCharts. Additionally, about two-thirds of SCHD’s portfolio “been designated by Morningstar to have a wide moat,” better than the 50% seen on the S&P 500, according to YCharts.
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which not only features some of the largest U.S. dividend payers, but also only those companies with at least 10 years of increased payouts, a familiar trait among some dividend funds. [Sun Rises for Dividend ETFs Again]
Even with the dividend increase streak mandate, SCHD’s weight to the technology sector, an up-and-coming dividend growth destination, is 13.4%. That is 300 basis points than the Vanguard Dividend Appreciation ETF’s (NYSEArca: VIG) tech weight.
SCHD’s underlying index screens for companies with average daily dollar volume of at least $2 million, which further enhances liquidity while keeping spreads tight. Each of the ETF’s top-10 holdings, a group that combines for 44.7% of the ETF’s weight, are members of the Dow Jones Industrial Average. [Behind the Rise of the Schwab Dividend ETF]
In terms of dependable dividend growth, SCHD has that as well. Microsoft (NasdaqGS: MSFT), the ETF’s largest holding at a weight of 4.9%, has raised its payout by 21.7% and 15%, respectively, over the past two years. P&G, Johnson & Johnson (NYSE: JNJ) and Coca-Cola, each a top-10 holding in SCHD, have three of the longest dividend increase streaks among U.S. stocks.
SCHD has a distribution yield of 2.65% and can be traded commission-free by Schwab clients.
Schwab US Dividend Equity ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of MOAT, P&G and SCHD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.