The Schwab US Dividend Equity ETF (NYSEArca: SCHD) is a solid idea for investors looking to bolster income at a low fee. SCHD includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive years and charges just 0.07%, or $7 per $10,000 invested.
A dividend increase streak is useful for getting investors interested in a stock or ETF, but there has to be more meat on the bone to sustain that dividend growth. SCHD features that added meat by focusing on other quality factors such as return on equity, cash flow to debt ratios, dividend yield and five-year dividend growth.
“The fund’s profitability tilt is evident. Its return on invested capital has been nearly double the category average since the fund’s inception,” said Morningstar. “Its ROE and return on assets have also been higher than the category averages since its inception. This strategy launched in October 2011, so it has not yet been through a bear market. From its inception through December 2017, the fund returned 15.2% on an annualized basis, outpacing its category by 1.7% annually with less risk. Its favorable overweighting to the technology sector and stock selection within the industrials sector have contributed the most to its outperformance.”
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.