Why I Can't Stop Buying This Popular ETF Even Though It's Up More Than 10% Already in 2026.
Key Points
The Schwab U.S. Dividend Equity ETF has significantly outperformed the S&P 500 this year.
The fund remains an attractive investment opportunity.
Its focus on dividend growth positions it to continue delivering robust total returns.
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The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the more popular ETFs, especially among income-focused investors. That's due to its attractive dividend yield, strong historical returns, and low costs. It's become one of my favorite ETFs to buy.
I recently bought a few more shares of the top ETF even though its price has surged more than 10% this year, vastly outperforming the S&P 500, which is down almost 5% on the year. Here's why I can't stop buying this top ETF.
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Still an attractive investment
While an investment in the Schwab U.S. Dividend Equity ETF has significantly outperformed the S&P 500 this year, the fund remains attractive. The ETF currently has a trailing 12-month dividend yield of 3.3%, nearly triple the S&P 500's 1.2%. That's because it focuses on investing in higher-yielding dividend stocks.
Most of these companies trade at lower valuations, giving them higher yields. For example, the ETF's holdings currently trade at about 20 times earnings and about 10.7 times cash flow. That's cheaper than the S&P 500, which trades at 22.3 times earnings and 14.5 times cash flow.
With a significantly higher yield and a lower valuation, the Schwab U.S. Dividend Equity ETF remains an attractive investment opportunity despite its share price run-up this year.
Its long-term strategy should continue to pay dividends
The Schwab U.S. Dividend Equity ETF has a simple investment strategy. It tracks an index (Dow Jones U.S. Dividend 100 Index) designed to measure the performance of 100 top high-yield dividend stocks. It screens companies based on several dividend quality characteristics, including yield, five-year dividend growth rate, and financial strength. That focus on dividend growth is worth noting because it has historically driven the highest annual returns among stocks based on their dividend policies:
|
Dividend policy |
Returns |
|---|---|
|
Dividend growers and initiators |
10.2% |
|
No change in dividend policy |
6.8% |
|
Dividend cutters and eliminators |
-0.9% |
|
Dividend non-payers |
4.3% |
Data source: Ned Davis Research and Hartford Funds. Note: Data from 1973 to 2024.
The index's current holdings have grown their dividends at a rate of more than 8% annually over the last five years. That's faster than the S&P 500, which has grown its dividend at a 5% annualized rate during that period. As a result, the fund offers a higher current yield than the S&P 500 and is delivering a higher income growth rate.
That growth component has had a significant impact on the fund's long-term returns. The Schwab U.S. Dividend Equity ETF has delivered a more than 11% annualized total return over the past one-, three-, five-, and 10-year periods as well as since its inception in 2011 (13.3% annualized). It has benefited from the growing dividend income of its holdings and from the appreciation as these companies grow their earnings.
An excellent ETF to buy and hold
The Schwab U.S. Dividend Equity ETF is more than just a passive income investment. It delivers strong total returns as its underlying holdings grow their earnings and dividends. That's why I can't stop buying this fund even though its share price has surged this year. I fully expect it to continue generating robust returns over the long term due to its focus on holding the top high-yielding dividend growth stocks.
Should you buy stock in Schwab U.S. Dividend Equity ETF right now?
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Matt DiLallo has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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