Why I Just Backed Up the Truck and Loaded Up on This Top ETF

There's a tremendous amount of uncertainty in the world these days. As of this writing, Iran continues to change its mind about reopening the Strait of Hormuz and holding peace talks with the U.S. A resumption of the war would likely send oil prices soaring and stock prices tumbling.

That uncertainty makes it difficult to invest with confidence. However, one holding I have a high conviction in, despite the unknowns, is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). Here's why I recently backed up the truck and loaded up on more shares of this top exchange-traded fund (ETF).

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A defensive holding with strong return potential

The Schwab U.S. Dividend Equity ETF holds 100 top high-yielding dividend stocks. The fund tracks an index (Dow Jones U.S. Dividend 100 Index) that screens companies based on several dividend quality characteristics, including dividend yield, five-year dividend growth rate, and financial strength.

Dividend stocks tend to be more defensive holdings. They have historically been less volatile than dividend non-payers. They also provide investors with a tangible return in the form of dividend income. The Schwab U.S. Dividend Equity ETF has a trailing 12-month dividend yield of 3.4%, which is triple the S&P 500's yield (1.1%), providing investors with a higher tangible income return. So, if the market tumbles due to a resumption of the war in Iran, this fund shouldn't fall as far and will provide more dividend income, helping further cushion the blow.

Dividend stocks also tend to be strong performers in the long term. Over the last 50 years, dividend payers have delivered a 9.2% annualized total return (compared to 4.3% for non-payers), according to data from Ned Davis Research and Hartford Funds. The Schwab U.S. Dividend Equity ETF has done even better, delivering a more than 12% annualized total return over the past one-, three-, and 10-year periods as well as since its inception in 2011.

Unexpectedly holding the right stocks at the right time

The Schwab U.S. Dividend Equity ETF holds more than 100 stocks across nearly all market sectors. However, it has a high allocation to energy stocks (19.9% of its portfolio). Additionally, it has a meaningful position in defense contractor Lockheed Martin (NYSE: LMT), accounting for 3.2% of its portfolio. These stocks will get a boost if the war resumes. While the fund holds these stocks solely due to the quality of their dividends, it just happens to hold the right stocks at the right time.

Lockheed Martin's stock is already up about 20% this year due to the war. Its shares could continue to soar if the war resumes. However, even if the war ends, Lockheed Martin will remain an excellent holding for this fund. It currently offers a 2.4%-yielding dividend, which it has increased for 23 consecutive years. With defense spending likely to increase even if the war ends, Lockheed Martin should continue growing its dividend.

Meanwhile, the Schwab U.S. Dividend Equity ETF holds several oil stocks, including Chevron (NYSE: CVX), which accounts for 4% of its assets, and ConocoPhillips (NYSE: COP), at 3.7%. The oil stocks are both up by more than 20% this year and could have further to run if the war resumes, since it would keep the Strait of Hormuz closed to oil tanker traffic.

However, both companies can still thrive if the war ends and crude prices drop. Chevron expects to grow its free cash flow at a more than 10% compound annual rate through 2030, while ConocoPhillips expects to nearly double its free cash flow by 2029. Both forecasts assume oil averages $70 a barrel (it's currently in the high $90s). It would give both oil stocks the fuel to continue growing their high-yielding dividends. Chevron (3.9% yield) has increased its payout for 39 straight years, while ConocoPhillips (2.8% yield) aims to deliver dividend growth within the top 25% of S&P 500 companies. Those growing dividends are why they're among the fund's top holdings.

The right investment for now and in the future

The Schwab U.S. Dividend Equity Fund's lower risk profile and high-return potential make it an ideal ETF to buy in the current environment. That's why I recently backed up the truck and loaded my portfolio with more shares of this top-notch ETF.

Matt DiLallo has positions in Chevron, ConocoPhillips, and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips and Lockheed Martin. The Motley Fool has a disclosure policy.