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Yahoo
3 days ago
- Business
- Yahoo
DVY Is a Popular Dividend ETF for Passive Income. But Is It the Best?
The iShares Select Dividend ETF offers a 3.7% yield. The exchange-traded fund holds a curated list of 100 stocks, weighted by yield. Investors looking for an ETF that screens for the best dividend stocks can do better. 10 stocks we like better than iShares Trust - iShares Select Dividend ETF › Income investors often focus on a stock's dividend yield, but dividend yield alone doesn't provide anywhere near enough information when it comes to selecting exchange-traded funds (ETFs). For example, the iShares Select Dividend ETF (NASDAQ: DVY) is a popular fund with over $20 billion in net assets, thanks largely to its 3.7% yield. But at the end of the day, this iShares ETF may not be the best choice for most income investors, and the reasons become clear when comparing it to another dividend-focused ETF. The iShares Select Dividend ETF tracks the Dow Jones U.S. Select Dividend Index, which uses certain screening criteria to buy 100 financially strong dividend payers and then weights them by dividend yield. This means the highest-yielding stocks make up the biggest positions for the fund and have the biggest impact on its performance. The index's screening process has these requirements for its holdings: They paid dividends in each of the past five years. Dividends increased over the five-year span, though not necessarily in every year. They had positive earnings over the past year. The ratio of net income to dividends paid, or dividend coverage, is 167% or better. From the resulting list, which excludes real estate investment trusts (REITs), the 100 highest-yielding stocks are included in the Dow Jones U.S. Select Dividend Index and, thus, the iShares ETF. The iShares Select Dividend ETF has a dividend yield of around 3.7% as of this writing, which compares favorably to the S&P 500 index's roughly 1.3% yield. However, the fund's expense ratio is rather high for an ETF at 0.38%. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) also holds 100 stocks, though in this case, the fund's portfolio is market-cap weighted. That means the largest companies have the greatest impact on the fund's performance. The Schwab ETF's screening criteria are also different as it tracks the Dow Jones U.S. Dividend 100 index instead. This index only includes companies that have increased their dividends every year for at least a decade (again, REITs are excluded). A composite score is calculated for each of these companies by looking at their ratio of cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate. The 100 companies with the highest composite scores make into the index. The Schwab ETF boasts a higher yield of 4.0%. Its expense ratio is also lower at 0.06%. With that information, picking the better overall dividend ETF for your portfolio should be fairly easy if you're looking to maximize income: The Schwab U.S. Dividend Equity ETF has a higher yield. But don't stop there because a higher yield isn't the only thing you're getting with the Schwab ETF -- it's also much less expensive to own. An investor with $10,000 invested in each option would owe $38 in fees to the iShares fund versus just $6 to the Schwab fund. With fees paid annually on the total value of your position in each ETF, the higher expense ratio can add up to hundreds or thousands of dollars over time. The real icing on the cake, however, is evident by comparing the returns these two ETFs have provided to investors. The Schwab ETF's price performance has beaten that of the iShares ETF over the past decade. And as the chart above highlights, so has its total return, which includes the reinvestment of dividends. Taking these key performance metrics into account, it appears the screening process backing the iShares Select Dividend ETF falls short. If you're a dividend investor who wants an ETF that screens for quality stocks, the Schwab U.S. Dividend Equity ETF is worth a look. Before you buy stock in iShares Trust - iShares Select Dividend ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and iShares Trust - iShares Select Dividend ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $697,627!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $939,655!* Now, it's worth noting Stock Advisor's total average return is 1,045% — a market-crushing outperformance compared to 178% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. DVY Is a Popular Dividend ETF for Passive Income. But Is It the Best? was originally published by The Motley Fool
Yahoo
29-06-2025
- Business
- Yahoo
Why I Question SCHD's Role in My Portfolio -- Is There a Better Choice for Income and Growth?
Schwab's U.S. Dividend Equity ETF has underperformed other funds of late. The funds being held in comparison aren't actually all that comparable. The purpose of diversifying any portfolio is to limit the risk of inevitable but unpredictable change. These 10 stocks could mint the next wave of millionaires › As always, The Motley Fool cannot and does not provide personalized investing or financial advice. This information is for informational and educational purposes only and is not a substitute for professional financial advice. Always seek the guidance of a qualified financial advisor for any questions regarding your personal financial situation. If you'd like to submit your question for feedback, you can do so here. Do you own the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), and if so, have you been disappointed by its recent performance? If your answer to both questions is yes, you're not alone. Plenty of people have been frustrated with its lack of progress versus the broader market. One of these disappointed investors recently asked an entire Reddit community about this fund's usefulness when there are so many other options available. Why SCHD? It loses to both SPY and JEPQ in total returnsby u/Malevin87 in dividends There's always more to the story than anyone can know through a single Reddit post. Since many investors are likely grappling with this very same question, however, some thoughts on the matter are in order. First, you're not imagining things. As the original poster's math suggests, SCHD is trailing alternative exchange-traded funds (ETFs) like the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY). Indeed, even adding its sizable dividend payments (its trailing yield is just under 4%) into the mix, the Schwab fund has consistently underperformed SPY and JEPQ since the middle of 2023. This doesn't necessarily mean a fund like the Schwab U.S. Dividend Equity ETF doesn't belong in your portfolio, though. Yes, Schwab's dividend fund is lagging. It has for a while. There's an underappreciated reason for that. The Dow Jones U.S. Dividend 100™ Index that it is meant to mirror holds a bunch of the market's very biggest dividend payers that have been out of favor for a couple of years now. The fund -- and index -- are highly exposed to consumer goods names like Altria, oil and gas giants such as Chevron, and industrial tech stocks like Texas Instruments. These are all fine companies. But they've just not been what investors have been clamoring for over the course of the past few years. Investors are still mostly in love with technology stocks that are heavily exposed to the artificial intelligence (AI) revolution. That's a big reason the JPMorgan Nasdaq Equity Premium Income ETF has done so well since 2023, when the AI movement really took hold. As the name suggests, JPMorgan's Nasdaq Equity Premium Income fund holds the same stocks you'll find in the Nasdaq-100 Index. They include Nvidia, Microsoft, and Broadcom, just to name a few. There's a slight twist with JEPQ. Its primary purpose is to generate distributable income to its owners by selling "covered" call options against the stocks the fund holds. The strategy for achieving this usually works quite well, too. The ETF's current annualized dividend yield stands at an impressive 14.5%. Make no mistake -- this strategy also ultimately means that this fund's performance trails the Nasdaq-100's. It's just an attractive investment because so much of the Nasdaq-100's gains are still able to be collected in the form of immediate and perpetual income. It's a completely different kind of investment than the Schwab U.S. Dividend Equity ETF, so its net performance should be different. The same can be said of SPY. This ETF is neither dividend-oriented nor growth-oriented. It's just meant to mirror the performance of the S&P 500, which encompasses 85% of the U.S. stock market's total market capitalization. That's why it's such a good market barometer. Of course, the same AI-centric technology names that dominate the Nasdaq-100 also dominate the S&P 500. That's why it's also outperformed SCHD for the past couple of years. So what? Performance is performance, after all, and JEPQ and SPY are performing when Schwab's U.S. Dividend Equity ETF isn't. The reason you diversify isn't to capitalize on current leadership. You diversify because you have no idea what the future holds, and your job as an investor is to maximize your potential upside while minimizing your risk of the unknown. More to the point, although the JPMorgan Nasdaq Equity Premium Income ETF and the SPDR S&P 500 ETF Trust may be leading the Schwab U.S. Dividend Equity ETF right now, that could change in an instant. That possibility is more real right now than you might realize, given the environment. While selling (or "writing") covered call options on the Nasdaq-100's stocks has worked well enough since 2023, the market's somewhat choppy sideways to slightly bullish trend favors this strategy. That's especially true in an environment with above-average volatility and rising interest rates, as we've seen lately. This rise in interest rates also works against dividend stocks, since the market will adjust their prices lower to push their dividend yields closer to bonds' yields. Given this, it's not surprising that SCHD has underperformed of late. But what if everything about this backdrop reverses? What if interest rates start to sink and/or the market's volatility starts mellowing out? Or what if a strong marketwide bull market takes hold? This situation would favor dividend stocks again, but also make JPMorgan's option-writing strategy even more difficult to execute, and relatively less productive than simply buying and holding. You won't see this shift coming before it happens. You'll only see it after the fact, when SCHD starts to perform better, and JEPQ starts to perform worse. This isn't to suggest that JPMorgan's covered call ETFs aren't worth owning, nor is it a guarantee that Schwab's dividend ETF is on the verge of recovery. That's the point. While an environmental shift is likely, we can't know when or to what extent it will take shape. That's why you remain diversified even when it's difficult to stick with a laggard and not double down on leaders. You're preparing for all possibilities by owning a little of everything, and not too much of anything. It's also worth considering that one year's time isn't actually very long when it comes to stocks. It may be too soon to come to a sweeping long-term conclusion here. That being said, in this particular instance, two of the three exchange-traded funds in focus are at the extreme opposite ends of the spectrum. There may be room for something else in between that isn't quite so dividend-oriented, but also not so tech-centric. For instance, while its dividend yield may be a modest 1.7%, the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is based on the S&P U.S. Dividend Growers Index, which makes a point of not including the highest-yielding stocks just because they're more likely to underperform. Sure enough, this dividend fund has easily outperformed SCHD for the past couple of years. Even if it hasn't quite kept pace with JEPQ, it's at least been respectably close. High-quality dividend stocks do offer the capital growth that most investors also want. They do better in times of market weakness too, since their cash dividend payments usually remain unfazed. VIG is just one of several other ETFs that might be worth considering here, however. The Vanguard Growth ETF (NYSEMKT: VUG) wouldn't be a bad bet either, if income isn't actually an immediate concern. When a portfolio is well-diversified (as it should be) to protect an investor from the unknowable, the unexpected, and the unpredictable, one of those holdings is always going to lag. That's OK. That's the reasonable price you pay for the protection. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $409,114!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $38,173!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $713,547!* Right now, we're issuing 'Double Down' alerts for three incredible companies, available when you join , and there may not be another chance like this anytime soon.*Stock Advisor returns as of June 23, 2025 JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, JPMorgan Chase, Microsoft, Nvidia, Texas Instruments, Vanguard Dividend Appreciation ETF, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool recommends Broadcom 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. Why I Question SCHD's Role in My Portfolio -- Is There a Better Choice for Income and Growth? was originally published by The Motley Fool
Yahoo
17-04-2025
- Business
- Yahoo
Is the Schwab U.S. Dividend Equity ETF a Buy Now?
Dividend investors understand the importance of diversification. You wouldn't want to depend on only a few companies for your income because it can be a disaster if something happens to those stocks. That's why exchange-traded funds (ETFs) are such valuable tools. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) might be the most popular dividend ETF. It helps investors easily diversify their portfolios and has delivered a mix of income and share-price appreciation over the years. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » Recently, the Dow Jones U.S. Dividend 100, the market index that the Schwab U.S. Dividend Equity ETF follows, underwent its annual reconstitution. It's an excellent opportunity for investors to check out the ETF's new look. Is now a good time to buy? Here is what you need to know. The Schwab U.S. Dividend Equity ETF pays a quarterly distribution. Investors received the fund's most recent distribution on March 31, $0.2488 per share. On an annualized basis, it amounts to about a 4% dividend yield, the ETF's highest outside of the COVID market crash in 2020. It's a massive win for investors who want immediate investment income. This doesn't guarantee that future distributions will be as generous. The ETF's trailing-12-month yield is closer to 3.5%. Still, history is on your side. The fund has significantly upped its distributions over time: It's not always in a straight line, but the long-term trend jumps off the page. Even though the fund focuses on blue chip dividend stocks (generally mature companies that lack fast-paced growth), the ETF's most recent distribution represents over 500% growth since the fund was launched. The Schwab U.S. Dividend Equity ETF looks quite different than just a few weeks ago. The shake-up following the Dow Jones U.S. Dividend 100 index's annual reconstitution saw about 19.2% portfolio turnover. It removed 17 existing holdings in favor of 20 new additions. Despite the changes, the index and the Schwab ETF still abide by the same core themes. Technology exposure remains minimal at just 8.7% compared to the sector's 30.2% weight in the S&P 500 index. The Schwab ETF is more diverse, with sizable weightings in financials (18.7%), healthcare (16.7%), consumer staples (14.4%), industrials (13.3%), and energy (11.7%), among others. Today, the ETF's top holdings include: Ranking Company Name Weighting (of the ETF's assets) 1. Coca-Cola 4.47% 2. Verizon Communications 4.43% 3. Lockheed Martin 4.29% 4. Altria Group 4.19% 5. ConocoPhillips 4.15% 6. PepsiCo 4.15% 7. Home Depot 4.05% 8. Chevron 3.96% 9. Amgen 3.93% 10. Cisco Systems 3.92% Source: The Schwab U.S. Dividend Equity ETF prospectus. The ETF has 103 holdings, but these 10 account for over 41% of the fund's assets. The notable eliminations (weights of 1% or more) included Pfizer, BlackRock, U.S. Bancorp, and M&T Bank, while the notable additions were ConocoPhillips, Merck, Schlumberger, Target, and General Mills. Following the reconstitution, the Schwab U.S. Dividend Equity ETF is weighted more heavily in energy, consumer staples, and materials, at the expense of every sector except real estate. Financials saw the steepest decline. The recent volatility throughout the U.S. stock market didn't spare the Schwab ETF. The fund has fallen over 9% since the start of April, nearly double the S&P 500's decline. This could be a fantastic dip to buy, and here's why. The starting 4% annualized distribution yield is a whopper and gives investors immediate and meaningful income. Some investors evaluate stocks based on their historical yields. In that light, the Schwab U.S. Dividend Equity ETF's abnormally large distribution yield makes it a table-pounding buy for that reason alone. And the ETF's cumulative price-to-earnings ratio (P/E) is 17.7 today, a solid price to pay for what you're getting. The fund features high-quality dividend stocks that grow earnings and raise their dividends faster than inflation in most cases. The top stocks have betas under 1.0. Therefore, the ETF should hold up relatively well in a prolonged market decline. Although the Schwab U.S. Dividend Equity ETF might not deliver high-paced growth, the safety, peace of mind, and growing distributions are valuable in today's volatile market. Before you buy stock in Schwab U.S. Dividend Equity ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Schwab U.S. Dividend Equity ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $526,499!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $687,684!* Now, it's worth noting Stock Advisor's total average return is 818% — a market-crushing outperformance compared to 156% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 14, 2025 Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen, Chevron, Cisco Systems, Home Depot, Merck, Pfizer, Target, and U.S. Bancorp. The Motley Fool recommends Lockheed Martin and Verizon Communications. The Motley Fool has a disclosure policy. Is the Schwab U.S. Dividend Equity ETF a Buy Now? was originally published by The Motley Fool Sign in to access your portfolio
