Last Updated on August 20, 2024 by Chin Yi Xuan
The Schwab US Dividend Equity (SCHD) ETF is one of the most well-received ETFs among dividend investors.
As an ETF with a track record of consistently growing its dividend, SCHD is a key position in my Freedom Fund, making up >10% of the portfolio:
In this post, let us take a deep dive at SCHD, and 3 key reasons why it is my favorite dividend ETF to hold for the long term in my Freedom Fund!
RELATED LINKS:
- [Portfolio] A detailed look at my Freedom Fund
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p.s. Check out my go-to broker to invest in SCHD below!
Table of Contents
Quick Recap: What is an ETF & why dividend ETF?
Exchange-Traded Funds (ETF) are essentially low-cost funds listed in the stock market, where you can buy and sell just like stocks.
Simply put, ETFs are funds that track the performance of a basket of assets (eg. Stocks, bonds, commodities).
As such, dividend ETFs are ETFs that track a basket of dividend-paying assets, such as stocks and bonds.
Why invest in dividend ETFs?
Dividend ETFs make it easy for investors to gain diversified exposure to a basket of dividend-paying stocks (or other assets), without having to pick individual stocks.
The diversified nature of ETFs significantly reduces the impact should a single company perform badly.
LEARN MORE: Introduction to Exchange-Traded Fund (ETF)
What is Schwab US Dividend Equity (SCHD) ETF?
Schwab US Dividend Equity (SCHD) is a dividend ETF listed in the US stock market since 2011.
Key info of SCHD:
- ETF manager: Charles Schwab
- Expense Ratio: 0.06% per annum
- Holdings: US-listed stocks
- Dividend payout: Quarterly
How are stocks selected to be part of SCHD?
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which measures the performance of fundamentally solid US-listed companies with a track record of consistent dividend payment.
Essentially, stocks are filtered based on the following criteria:
- Dividend payout: Minimum 10 consecutive years of dividend payments.
- Size of the company: Minimum Float Adjusted Market Cap of $500 million.
- Liquidity: Minimum three-month Average Daily Volume of Trading of $2 million.
Then, qualified stocks are further ranked as per the following criteria:
- Dividend yield
- 5-year dividend growth rate
- Company’s financials (ie. Free cashflow vs debt)
- Return on equity (ROE)
As a result, companies that are selected to be part of SCHD holdings are usually companies with strong financial foundation and a solid track record of dividend payout.
3 key reasons why I invest in SCHD
#1 SCHD has a strong track record of growing its dividend payout
Since its inception in late 2011, SCHD has recorded more than 10 years of distribution growth streak (even as Covid broke out in 2020!).
| Financial Year | Dividend Payout ($) | Annual Payout Growth | Yield-on-Cost if you invested on 2/1/2014 (Entry Price: $36.54/share) |
| 2023 | 2.6580 | 3.77% | 7.27% |
| 2022 | 2.5615 | 13.90% | 7.01% |
| 2021 | 2.2490 | 10.88% | 6.15% |
| 2020 | 2.0284 | 17.64% | 5.55% |
| 2019 | 1.7242 | 19.79% | 4.72% |
| 2018 | 1.4393 | 6.96% | 3.94% |
| 2017 | 1.3457 | 6.97% | 3.68% |
| 2016 | 1.2580 | 9.72% | 3.44% |
| 2015 | 1.1466 | 9.52% | 3.14% |
| 2014 | 1.0469 | – | 2.87% |
From the above dividend data, we can see that SCHD has consistently grown its dividends for the past 10 years.
The dividend growth by SCHD also means that investors that invested in SCHD a decade ago, while started with a small 2.87% yield, would be enjoying 7.27% in yield-on-cost (p.s. click to find out what yield-on-cost means) in 2023:
i. Continued dividend growth streak in 2024
As of the 1st half of 2024, SCHD continues its dividend growth streak compared to the prior years:
ii. Why is SCHD’s growing dividend payout so attractive in the long term?
For investors looking to live off their dividends one day, SCHD can be an ETF to look out for thanks to its solid track record of dividend growth.
If you invested in a unit of SCHD 10 years ago (assuming 1st day of 2014) at $36.54/share, your yield-on-cost in the first year was just 2.87%.
During the first year (2014), you’ll be paid $10,469 in dividends (10,000 units x $1.0469), which translates to 2.87% in dividend yield.
10 years later (2023), your original investment in SCHD will pay you $26,580 in dividends (10,000 units x $2.6580), translating to 7.27% in dividend yield.
Thanks to the growth in dividends, your dividend payout increased from $10,469 to $26,580 in 10 years – a whopping 153% growth!
[IMPORTANT] It is important to note this discussion is a reference to the past, and past performance is NOT indicative of future returns.
#2 SCHD displayed decent overall performance
SCHD not only shines with its impressive track record of growing dividends.
With a 10-year annualized return of 10.99% (as of May 2024), SCHD’s overall performance (inclusive of dividends) has also been decent for the past decade.
#3 Relatively Low volatility
On top of both key reasons stated above, SCHD also produced returns at relatively lower volatility than the stock market (S&P500).
Beta measures the volatility of a stock in comparison with the market (usually the S&P500) as a whole.
As of July 2024, SCHD recorded a 5-year beta of around 0.77 (source: Yahoo finance), while the S&P500 has a beta of 1.00. This means SCHD is about 23% less volatile than the S&P500.
In other words, compared to the S&P500, investors who invest in SCHD tend to enjoy a more stable return with less intense market swings.
SCHD Holdings
As of March 2024, SCHD holds about 103 stocks. The top 10 companies make up about 40% of SCHD holdings:
Top Sector Exposure of SCHD
In addition, SCHD filtering method also means companies that qualified are commonly found in more stable sectors, such as the financials and healthcare sectors.
3 things/risks to know while investing in SCHD:
At a glance, SCHD is a pretty balanced dividend ETF with 103 holdings across different sectors. That said, here are 2 key things we need to know while investing in SCHD:
#1 Geographical risk
SCHD offers 100% exposure to US-listed companies. This means any domestic/international US-related events & conflicts will influence the performance of SCHD.
#2 Risk of dividend cut
While it is undeniable that SCHD has been growing its dividends for 12 years in a row, it is still not a guarantee that it will stay that way forever.
As such, investors should always be prepared for the possibility of a dividend cut, especially when the market & economy is not doing well.
#3 Dividend withholding tax (WHT) for non-US residents
For foreign investors that invest in US-domiciled ETFs such as SCHD, there is a dividend withholding tax (WHT) for dividend payouts.
As an example, there is a 30% dividend WHT for investors from Malaysia and Singapore.
Example: 3.5% dividend yield – 30% WHT = 2.45%
Personally, while this is not ideal, I still find SCHD’s solid track record of increasing dividend payout outweighs the dividend withholding tax factor.
It is the only US-domiciled dividend ETF that I wouldn’t mind investing in.
LEARN MORE: A guide to Dividend Withholding Tax (WHT) – all you need to know!
My thoughts on SCHD after investing in it for 2 years (2022-2024)
It is no secret that the dividend-investing community loves SCHD. Aside from growing its dividends consistently, SCHD has delivered a reliable return for many years.
From 2013 – 2022, SCHD has grown by 244%, outperforming the S&P500 (+207%).
I began to invest in SCHD in 2022, and here is what I observed as an SCHD investor:
#1 SCHD’s performance has been lackluster in 2023 and 2024
2023 and 2024 (so far) have been great times for investors, with the S&P500 hitting all-time highs.
However, since 2023, SCHD’s performance has been lackluster compared to the S&P500.
From 2023 – July 2024, SCHD has grown by a mere 7.6%. Meanwhile, the S&P500 has grown by over 47% during the same time:
READ: How to invest in S&P500 as a non-US citizen
#2 A lack of tech exposure led to SCHD’s underperformance
To understand SCHD’s underperformance, it is important to know what is driving S&P500’s growth since 2023.
The impressive growth in the S&P500 in 2023 – 2024 is mainly driven by the 7 stocks in the S&P500 – Apple, Alphabet, Meta, Microsoft, NVIDIA, Amazon, and Tesla.
Without these 7 companies (which make up ~26% of the S&P500 total weight), the S&P500 would have returned a rather mediocre performance:
In comparison, SCHD’s holding lacks exposure to all 7 stocks mentioned. More so, SCHD has a much lower exposure to the tech sector compared to the S&P500.
As of 2024, SCHD has 8.7% of holdings in the tech sector relative to S&P500’s 30.6% exposure. Simply put, SCHD may not fully benefit from the growth brought in by the tech industry:
On the bright side, since SCHD’s holdings are more balanced across different sectors (financials, healthcare, consumer staples), any fluctuation in the tech sector will have a smaller impact on SCHD’s performance, compared to the S&P500.
#3 Should I choose S&P500 over SCHD?
Given the current circumstances, should one invest in the S&P500 instead of SCHD?
The short answer: it depends on your goal as an investor.
Personally, I have exposure to both S&P500 and SCHD. As explained in my investing strategies, I have a growth investing portfolio and dividend investing portfolio (a.k.a. My Freedom Fund).
To maximize growth, the S&P500 is a significant part of my growth investing portfolio. For consistent & growing passive income, SCHD is an important part of my Freedom Fund.
READ: My investing strategies as I turn 30
#4 My thoughts on SCHD as an investment
At this point, SCHD remains an important holding in my Freedom Fund as it has proven itself with a solid track record of dividend growth.
My goal while investing in SCHD has always been dividend growth first, and capital appreciation (price growth) second.
Right now, SCHD still stands as one of the few ETFs with consistent dividend growth. As such, for the time being, my thesis of investing in SCHD for growing passive income stays valid.
Would there be a time when SCHD becomes obsolete to my investing goal?
Most certainly. The moment SCHD experiences consecutive dividend cuts coupled with poor price appreciation might be the time when I consider other alternatives.
Review: 3 best alternatives to SCHD
Meanwhile, check out my review of the 3 best Ireland-domiciled dividend ETFs HERE, which could be an alternative to SCHD:
Is SCHD for you?
For more than a decade, SCHD has proven itself as an ETF with a solid track record of growing dividends, while providing respectable growth opportunities at the same time.
In my opinion, SCHD would fit well with:
- Long-term investors (>10 years of time horizon) looking to invest for a steady & growing stream of dividend income.
- Dividend investors with exposure to Malaysia and/or Singapore stocks and are looking for diversified exposure to earn dividends in USD.
How to invest in SCHD? (My go-to broker)
Investing in SCHD is easy as many brokers offer access to the US stock market.
Investors can consider Interactive Brokers (IBKR), a global broker that I use to build my Freedom Fund (my dividend portfolio).
READ MORE: Interactive Brokers (IBKR) Review
No Money Lah’s Verdict
So, how do you like SCHD?
As a dividend investor with about 15 – 20 year time horizon, I think SCHD is a gem thanks to its track record of increasing dividends (even more so in a challenging 2022!).
I hope this review has been helpful!
Meanwhile, check out my go-to broker to invest in the global market below!
Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced for general information purposes only. It is not intended to constitute professional advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances.
The inclusion of Interactive Brokers’ (IBKR) name, logo or weblinks is present pursuant to an advertising arrangement only. IBKR is not a contributor, reviewer, provider or sponsor of content published on this site, and is not responsible for the accuracy of any products or services discussed.
I appreciate that you also explain possible risks in this product! Kudos 👍
Glad that it is helpful buddy! 🙂
Great overview and insight! I like how you also focused on the drawbacks for foreign investors regarding the tax 🙂
Thanks Shawn, glad that you like the post!
Regards,
Yi Xuan
Hi bro, thanks for the wonderful article! I am just curious as in why would you buy SCHG stock because it is not Ireland domiciled fund and we will get 30% WHT. Please clarify me
Hi Kumar,
Mainly as SCHD is one of the rare dividend ETF that kept growing its dividend payout over the past years.
Regards,
Yi Xuan