SCHD Is Brilliant. Here's Why I Think This Dividend ETF Is Even Better.
Key Points
SCHD focuses on high-yielding dividend growth stocks.
RDVY concentrates on Nasdaq-listing companies that pay rising dividends.
RDVY's focus on faster-growing companies has yielded higher total returns.
- 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of my favorite exchange-traded funds. It offers a high dividend yield and has delivered strong total returns. However, I think the First Trust Rising Dividend Achievers ETF (NASDAQ: RDVY) is even better if you're seeking a higher average annual total return to grow your wealth faster. Over the past decade, RDVY has delivered an average annual total return of 15.8%, outpacing SCHD's 13.2%.
Here's a look at how these two dividend ETFs differ.
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SCHD: Focused on high-quality, high-yielding dividend stocks
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which screens companies based on several dividend quality characteristics, including yield and five-year dividend growth rate. The ETF's trailing 12-month dividend yield is 3%, triple the S&P 500's level. Meanwhile, its holdings have grown their dividends at an average annual rate of more than 9% over the past five years.
Its holdings tend to be slower-growing and higher-yielding companies. Its top sectors are healthcare (21%), consumer staples (20%), and energy (14%). Meanwhile, its top holdings feature several well-known dividend stocks, including Coca-Cola, Procter & Gamble, and PepsiCo, each of which is a Dividend King with over 50 years of annual dividend increases. They offer higher yields: Coca-Cola currently yields 2.4%, while PepsiCo yields 4.6%. The dividend income generated by SCHD's holdings is a meaningful contributor to its total return.
RDVY: Focused on Nasdaq-listed dividend growers
The First Trust Rising Dividend Achievers ETF aims to deliver investment results that correspond to those of the Nasdaq U.S. Rising Dividend Achievers Index. That dividend-focused index screens Nasdaq-listed companies that have paid a dividend over the last 12 months, and that dividend is higher than it was in the same periods three and five years ago. It also screens for companies with growing earnings, a strong financial profile, and a reasonable dividend payout ratio.
Since RDVY pulls its holdings from the Nasdaq, its holdings tend to be more growth-focused companies. The ETF's top sectors are financials (30%), technology (26%), and industrials (22%). Many of these faster-growing companies have lower dividend yields, which is why it's no surprise that RDVY's yield is rather low at 0.8% over the last 12 months. Some of its notable holdings are low-yielding tech giants Meta Platforms (0.3%) and Nvidia (0.4%).
Better for some, not for all
Data from Ned Davis Research and Hartford Funds shows that dividend growth stocks have historically delivered the highest total returns. Both funds focus on these top performers, but from a different angle. SCHD looks for high-yielding dividend growth stocks, while RDVY seeks faster-growing companies that pay rising dividends. RDVY's more pure growth focus makes it the better ETF for investors seeking to grow their wealth faster, while SCHD is better for those seeking a higher current income stream.
Should you buy stock in Schwab U.S. Dividend Equity ETF right now?
Before you buy stock in Schwab U.S. Dividend Equity ETF, consider this:
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Matt DiLallo has positions in Coca-Cola, Meta Platforms, PepsiCo, and Schwab U.S. Dividend Equity ETF and has the following options: long December 2028 $650 calls on Meta Platforms and short December 2028 $660 calls on Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
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