One Of My Favorite Dividend ETFs May Belong In Your Core Portfolio
There are many good reasons why the exchange-traded fund (ETF) revolution took hold so fast.
The first ETF (SPY) debuted in the U.S. 1993 — not even 30 years ago. Compared to mutual funds, that’s a relatively short time. But they have truly changed the investment world as we know it.
Thanks to the advent of ETFs, for a smaller-than-ever fee, investors can now easily venture abroad and invest a tiny (or a huge) amount of money in nearly any market they can think of. And ETFs have made it possible, for investors big and small, to create a variety of their own strategies too, to add new markets and domestic sectors to their core portfolios of stocks and bonds to better address their needs and goals.
ETFs provide ease of investing, diversification, quick access, and fast trading — and this is the ultimate secret to their long-term success.
Of course, income investors should not feel left out. Rather, the opposite: So dramatic was the growth of exchange-traded funds over the past couple of decades that the current selection of dividend-oriented ETFs can sometimes overwhelm.
Worry not, though: one of my favorite dividend-focused ETFs is one of the best in the category. And if you’re looking for a core holding to build your portfolio around, I can’t think of a better place to start…
One Of The Best Dividend-Focused ETFs Around…
Schwab U.S. Dividend Equity ETF (NYSE: SCHD) is an ultra-low-cost passively managed fund with a focus on both dividends and capital appreciation. It’s based in the U.S. markets and is constructed from high-quality dividend-paying U.S. companies with a record of consistent dividend payments.
Some income investors might find the 2.9% yield too low for their liking. But consider this before you leap to a conclusion…
The average yield on the S&P 500 right now is about 1.3% — so we’re already beating the index in terms of yield. And what’s more, the composition of this fund should appeal to investors for a lot of reasons beyond that…
This unique ETF was specifically built to track the performance of quality large-cap stocks with established dividend track records of at least ten years. From an initial universe of 2,500 stocks, candidates are scored in four areas: current yield, 5-year dividend growth, return on equity and cash flow/debt ratio.
Those that rank in the top 100 are eligible for membership in the index. That means the portfolio is skewed toward stocks whose payouts are not only elevated but also fast-growing and supported by solid cash flows.
While the ETF isn’t going to be immune to volatility, the selection criteria for the fund makes it reasonably sure the companies in it are higher-quality ones, and this means they should be more resistant in a downturn (both in terms of price performance and the consistency of the dividends).
Second, SCHD is passively managed, so its cost is low (0.06% expense ratio). While this might be a secondary factor after the quality of its components, it isn’t something to be ignored for an income-related holding.
But as they say, the proof is in the pudding. And SCHD holds up well on multiple fronts…
Aside from dishing out an above-average yield, SCHD has turned in stellar total returns of about 16.4% annually over the past five years. Over 10 years, 14.8% — enough to turn a $10,000 investment into more than $41,000 today. The performance over both five and ten years both rank in the top 2%, beating 98% of all funds in the crowded large-cap value category, according to Morningstar.
Longtime readers know I’ve always been a fan of ETFs. I even used to write a premium newsletter exclusively dedicated to them back when they were really beginning to catch on and gain ground against mutual funds.
There are thousands of choices out there, to be sure. But for all of these reasons I stated above, investors would be wise to consider SCHD as a potential core portfolio holding.
I know it may not be the sexiest pick in the world, or the highest-yielding, either. But just about everyone needs a fund like this to simply let compounding work its magic over time.
In the meantime, if you’re looking for the best high-yield picks the market has to offer, then you need to check this out...
In my latest report, I reveal 5 of my favorite high-yield securities. I consider each one of them to be practically “bulletproof” — because they’ve proven that they can hold up in any market — and continually reward investors year after year.