Dividend investing is a process. It's not about the first year's dividend income; it's about 10 years out and more, when you really start to see the compounding process at work.
The Schwab U.S. Dividend Equity ETF™ remains a buy for conservative investors seeking stable returns and growing dividends despite annual reconstitution changes. The 2025 reconstitution impacts the dividend. Significant portfolio changes included the removal of Pfizer and BlackRock and the addition of energy stocks like ConocoPhillips and Schlumberger.
Dividends significantly boost total returns, contributing 84% of the S&P 500's total return over the past 60 years. Broad market indices like the S&P 500 and Nasdaq 100 are overvalued, suggesting the potential for sub-par future returns. Dividend stocks, on the other hand, tend to outperform during economic uncertainties and have a strong track record, making them a valuable addition to any portfolio.
The Schwab U.S. Dividend Equity ETF (SCHD -0.94%) is one of the largest exchange-traded funds (ETFs) focused on dividend stocks. The fund has over $77.5 billion in assets under management (AUM), making it the second-biggest fund geared specifically toward dividend investing.
The stock market has been a wild roller coaster ride for the past five years, shifting from bull market to bear and back numerous times.
The yield curve has become inverted since my last analysis of VTI, prompting me to consider hedging strategies for my equity exposure. SCHD is an excellent hedge idea for several reasons. SCHD has historically demonstrated far better resilience during market downturns in terms of severity or underwater duration.
SCHD's Index reconstituted at the close of business Friday, resulting in 20 additions and 17 deletions. The Index deleted Pfizer and BlackRock, while the addition ConocoPhillips is SCHD's new top holding. Total Energy sector exposure is now above 20%, which raises some concerns regarding dividend growth and consistency. My backtest reveals the new portfolio is designed for high-inflation years like 2022. SCHD's Index yield dropped by 0.07%, and shareholders should earn about 3.81% at current prices. Importantly, SCHD retained its quality, value, and dividend growth advantages over other dividend ETFs.
Dividend investing is awesome. The ultimate goal is to build a portfolio of dividend stocks that pay you enough cash to cover your living expenses while diversifying so that the payouts come from many companies.
The stock market has had a rough start to 2025 and growth investors are worried about what might come next.
SCHD constantly underperforms the S&P 500 due to focusing on dividend growth without considering valuation, leading to long-term underperformance. The ETF's top holdings often reach high valuations due to gains, not because they were bought cheaply. SCHD's performance during market downturns is only slightly better than the market, failing to close the gap with the S&P 500.
Schwab's SCHD ETF and Vanguard's VIG ETF both offer multi-sector exposure to dividend-paying firms.
Within the past 1-month period, the Schwab U.S. Dividend Equity ETF has significantly outperformed the S&P 500 (0.61% vs. -6.90%). Supplementing SCHD with March's Top 10 high dividend yield companies and 5 attractive risk and reward choices, you can significantly increase the ETF's potential for dividend income. I will provide you with strategic guidance on how to build a $500,000 dividend portfolio, holding the Schwab U.S. Dividend Equity ETF as the largest position.