If I Could Only Buy and Hold 1 Dividend ETF Forever, Here's What I'd Choose
Key Points
A dividend-focused ETF can be ideal for buy-and-hold investors.
This ETF holds financially stable companies known for weathering market downturns.
The fund's low fees mean more money to invest and potentially grow.
- 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›
One of the best parts of financial writing is research. No matter how many years a person has written or how much they believe they know about the market, research is part of the process. It shapes and reshapes my personal approach to investing, helping me decide whether I'm still on track.
One thing I've found through research is how different exchange-traded funds (ETFs) are. Like cousins, they may resemble each other, but they don't all track the same index or focus on the same investment theme. The ETF that best fits one investor may not be right for another.
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Based on ETF characteristics I feel most confident investing in, I've decided which ETF I would hold forever -- even if it were the only one in my portfolio.
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Schwab U.S. Dividend Equity ETF
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) seeks to replicate the performance of the Dow Jones U.S. Dividend 100 Index, including 100 U.S. stocks with a history of consistent dividend payments and strong fundamentals.
Because it gives investors exposure to high-dividend-yielding U.S. companies, its holdings include companies I know and feel confident investing in. For example, SCHD's top 10 include giants like Home Depot, Merck, Procter & Gamble, Abbott Laboratories, and Verizon Communications. But there's something else I like: The way SCHD's top 10 holdings are weighted.
|
Holding |
Percentage of Portfolio |
|---|---|
|
Merck |
4.8% |
|
Amgen |
4.8% |
|
Abbott Laboratories |
4.7% |
|
Coca-Cola |
4.2% |
|
Verizon Communications |
3.9% |
|
Chevron |
3.9% |
|
Home Depot |
3.9% |
|
UnitedHealth Group |
3.9% |
|
ConocoPhillips |
3.9% |
|
Procter & Gamble |
3.8% |
Data source: Schwab (as of Aug. 31).
By weighing the top 10 so evenly, risks are diffused. If one or two stocks decline, the event won't carry enough weight to pull the entire index down.
Expense ratio
The fund is passively managed, meaning its sole job is to mirror the index rather than actively picking new stocks. Passive management also means investors pay an expense ratio of only 0.06%.
In recent years, expense ratios have become a determining factor in whether I'm interested in investing in anything, including ETFs. While I once allowed myself to gloss over expense ratios, particularly if an investment had a history of producing strong returns, it's now front and center. One of my biggest early investment mistakes was underestimating how much expenses erode an asset's value.
Dividends
While this is my first mention of dividends, SCHD's dividend track record is one of my favorite things about the fund. With a trailing-12-month return of 3.13% and an SEC yield of 3.27%, there's nothing quite like watching an investment account grow while also collecting dividends.
When I was a young investor, I sometimes viewed each new investment like a date. If it didn't work out, no harm; it was simply time to move on. The more experienced I've become, the more I realize that investments are more like marriage: It's up to me to get to know an investment well enough to decide whether I want it to be part of my life long-term.
Regarding SCHD, the answer is yes.
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Dana George has positions in Merck and Procter & Gamble. The Motley Fool has positions in and recommends Abbott Laboratories, Amgen, Chevron, Home Depot, and Merck. The Motley Fool recommends ConocoPhillips, UnitedHealth Group, and Verizon Communications. The Motley Fool has a disclosure policy.
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