SCHD Is a Popular Dividend ETF for Passive Income. But Is It the Best?
There's no shortage of exchange-traded funds (ETFs) on the stock market today, covering everything from specific indexes and industries to geographic regions and investment strategies. Regarding the latter, there has been a jump in popularity of dividend-focused ETFs, including the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).
For those looking for consistent dividend income, is the SCHD the best ETF on the market? For many investors, the answer could be yes.
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Of course, there's no "perfect" stock or ETF, but SCHD has shown it has the tools needed to be a great addition to the portfolio of anyone who wants a mix of stability and above-average dividend payouts.
Data by YCharts.
How can SCHD be the best of both worlds?
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which focuses on high dividend-yield stocks with a track record of consistent, growing payouts and strong business fundamentals. Those criteria mean that most of the stocks held in SCHD tend to be large companies with impressive cash flows.
Here are the SCHD's top 10 holdings and what percentage of the fund they represent:
| Company | Percentage of the ETF |
|---|---|
| Texas Instruments | 4.27% |
| Cisco Systems | 4.22% |
| ConocoPhillips | 4.17% |
| Chevron | 4.15% |
| Merck & Co. | 3.97% |
| AbbVie | 3.93% |
| Altria Group | 3.91% |
| Home Depot | 3.85% |
| Verizon Communications | 3.84% |
| Coca-Cola | 3.84% |
Source: Charles Schwab. Percentages as of June 27.
SCHD is slightly top-heavy, with the top 10 holdings accounting for 40% of the fund, but they're relatively evenly distributed among themselves. Compare this to the S&P 500 index, where Nvidia, Microsoft, and Apple alone can easily make up over 20% of the index, or the Nasdaq-100, where they can make up a quarter.
Being led by what many may see as "boring" companies also helps keep SCHD relatively stable during down periods.
SCHD offers an above-average dividend at a low cost
SCHD's current dividend yield (as of June 27) is around 3.9%, slightly above its average for the past five years. Both its current dividend yield and five-year average yield are more than twice that of the S&P 500.
Data by YCharts.
SCHD's low 0.06% expense ratio also ensures that you keep more of the ETF's total returns for yourself, rather than paying them in fees. That's only $0.60 in fees per $1,000 invested in the fund, which is lower than many comparable ETFs.
One piece to the portfolio puzzle
SCHD is a great option for investors looking for passive income. It offers a powerful trifecta: a high dividend yield, a portfolio of high-quality companies, and a low expense ratio. You can't ask for much more. That said, SCHD is probably best suited as a supplemental piece in most investors' portfolios, rather than as the foundation.
The income component is valuable, but the underlying index's criteria for inclusion mean lots of great companies are left out. SCHD is also less diversified than broad market funds like the Vanguard S&P 500 ETF or Vanguard Total Stock Market ETF.
For income investors, though, SCHD is one of the best ETF options on the market.
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Stefon Walters has positions in Apple, Coca-Cola, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends AbbVie, Apple, Chevron, Cisco Systems, Home Depot, Merck, Microsoft, Nvidia, Texas Instruments, Vanguard S&P 500 ETF, and Vanguard Total Stock Market ETF. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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