Meet the Dividend ETF With Big Stakes in These 3 Blue Chip Stocks

High-yield dividend stocks are often a place that investors turn to for steady income and potential safety from stock market sell-offs. The stocks held by dividend exchange-traded funds (ETFs) tend to be financially strong, well-established companies that can weather a downturn in the economy.

One of the most popular dividend index funds is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). This fund holds a mix of 102 dividend stocks from a range of industries. A few of SCHD's biggest holdings are well-known blue chip stocks like Chevron (NYSE: CVX), Coca-Cola (NYSE: KO), and Home Depot (NYSE: HD) -- household name companies that have paid steady dividends for many years.

If you want to buy Coca-Cola, Chevron and Home Depot shares as part of a diversified dividend-focused portfolio, the SCHD fund is an easy, low-cost way to do it. But not all blue chip stocks are equally likely to succeed in today's complex economic environment.

Let's look at these three blue chip stocks in the Schwab U.S. Dividend Equity ETF portfolio and see why this fund can be a good buy -- even if some of its holdings underperform in the short run.

Image source: Getty Images.

SCHD: 3.24% dividend yield, 10 years of 12.4% annualized returns

The Schwab U.S. Dividend Equity ETF ranks as one of the best dividend index funds, because it pays strong dividends. This fund's trailing 12-month yield was 3.24% as of Sept. 30. That's more than three times the 1.05% yield paid in the past 12 months by the S&P 500 index. And it charges an ultra-low expense ratio of 0.06%.

SCHD has delivered annualized returns of about 12.4% in the past 10 years, about 9.5% in the past five years, and 23.4% in the past year.

Dividend stocks and blue chip ETFs are often sought after by investors who worry about upcoming stock market volatility. If you are concerned that the S&P 500 has become too tech-heavy and too dependent on the artificial intelligence (AI) trade, if you want "safer" stocks that might hold up better in case of a tech sell-off, SCHD could be a good alternative.

That's because this dividend ETF is not too tech-heavy. The top five sector holdings in this Schwab fund are healthcare (20.7% of the fund), consumer staples (20.4%), energy (14.1%), industrials (11.55%) and financials (10.05%). Only 9.23% of the fund's assets are in tech stocks.

Can you buy CVX, HD and KO are in the Schwab Dividend Equity ETF?

Chevron (CVX), Coca-Cola (KO) and Home Depot (HD) stocks are all large-caps with strong balance sheets and industry-leading market share. They're all included as part of the Schwab U.S. Dividend Equity ETF portfolio -- buying SCHD will let you own all three of those stocks, along with 99 other dividend stocks.

But these three blue chip stocks have delivered quite different returns in the past few years. Here's how CVX, KO, and HD have performed in the past five years compared to the SCHD fund:

CVX Total Return Level data by YCharts

Home Depot has struggled for the past few years with rising interest rates and a slowdown in the housing market. If interest rates keep rising and the housing market stays frozen, with fewer people buying homes or borrowing money to renovate homes, that could be bad news for Home Depot's business.

How much CVX, HD and KO does SCHD own?

As of Oct. 12, here's how Chevron, Coca-Cola, and Home Depot ranked among the Schwab U.S. Dividend Equity ETF top holdings -- and how SCHD compares to the S&P 500:

Data source: Schwab, State Street

If you buy SCHD, you will be taking a much more concentrated position in these three blue chip stocks compared to their weight within the S&P 500 index. But if you believe in the future of dividend stocks, that could be a bet worth making.

Is now a good time to buy these three blue chip stocks in SCHD?

Coca-Cola may still have a bright future ahead, even if there is a stock market crash or recession. It's an industry-leading consumer staples brand, and people are likely to keep buying beverages whether or not the AI boom turns into a tech sell-off.

Chevron is a leading energy stock, and the energy sector is generating strong earnings due to the global disruptions in energy supply chains from the Iran war. Energy stocks can also be good choices in case of a bear market.

Home Depot might be the riskiest of these three blue chip stocks in the short run. The housing sector is struggling, and mortgage rates keep climbing. That makes it harder for homeowners to feel confident about splurging on home renovation projects. But Home Depot only ranks as the 11th biggest holding in SCHD, with 3.81% of the fund's assets.

And if you're a long-term investor, it's hard to believe that the U.S. housing industry will stay in the doldrums forever. Home Depot shares could quickly bounce back at the first future signs of lower interest rates and a housing market rebound.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and Home Depot. The Motley Fool has a disclosure policy.