What SCHD actually is

SCHD is Schwab’s dividend ETF. It tries to follow an index of high dividend-yielding US companies that have a record of paying dividends consistently, chosen for fundamental strength relative to their peers using financial ratios. It invests at least 90% of its assets in the stocks of that index.

It launched in 2011 and is one of the best-known ETFs built for dividend investors.

What is inside

The index does not simply pick the highest yields. A company has to pass quality tests too, so the fund avoids many of the stocks with big payouts but weak finances. That tilts it toward established companies in sectors such as consumer staples, healthcare, financials and energy, and away from technology growth names that pay little.

The result is a fund that is concentrated in value-style dividend payers, so it behaves differently from a broad market fund.

Distributions

SCHD pays out the dividends collected from its holdings regularly. Its yield is typically higher than a broad S&P 500 fund and lower than the most aggressive high-yield funds. The fund also holds stocks that raise their dividends, so its income tends to grow over time. Check the fund’s current yield, fees and distribution schedule on the issuer’s website, because they change.

What to keep in mind

  • Sector tilt. It holds more of some sectors and less of others than the market.
  • Not the highest yield. The quality screen trades some yield for stability.
  • Overlap with other dividend ETFs. Many dividend funds hold the same large companies.
  • Market risk. Falling markets still lower the share price.

Quick take

SCHD is a popular core dividend ETF that balances income with quality. Compare it with VYM and VIG before choosing.