Is Schwab US Dividend Equity ETF Flying Under the Radar for Dividend Investors?

Published: Tuesday, September 16, 2025 at 9:24 am

Schwab US Dividend Equity ETF: A Closer Look for Income Investors

The Schwab US Dividend Equity ETF (SCHD) presents a compelling option for dividend-focused investors, despite its yield potentially being overlooked. While offering a 3.7% dividend yield, which is nearly three times larger than the S&P 500 index's yield of around 1.2%, it may not immediately capture the attention of investors seeking the highest payouts.

Other ETFs, such as the Invesco High Yield Equity Dividend Achievers ETF (PEY), offer higher yields, with PEY yielding approximately 4.5%. This difference is significant for investors, particularly those aiming to meet the 4% retirement withdrawal rule of thumb, which suggests using 4% of retirement savings annually to ensure a lifetime of income.

However, focusing solely on yield might lead investors to miss the nuanced approach of SCHD. Unlike ETFs that prioritize high yields by investing in companies solely based on their dividend payouts, SCHD employs a more comprehensive strategy. It selects stocks that have increased their dividends for at least a decade, excluding real estate investment trusts. The ETF then evaluates companies based on a composite score considering cash flow to total debt, return on equity, dividend yield, and five-year dividend growth. The 100 companies with the highest scores, weighted by market capitalization, are included in the ETF.

This approach has resulted in generally rising dividends and share prices for SCHD, contrasting with the dividend growth of PEY. The article suggests that investors may be trading dividend growth for yield when focusing solely on the highest payouts.

The article emphasizes the importance of considering dividend growth, as it can protect against inflation, which erodes the purchasing power of dividends over time. Over time, SCHD's dividend growth could potentially generate more income than higher-yielding ETFs with less growth potential.

BNN's Perspective:

The analysis highlights the importance of a balanced approach to dividend investing. While higher yields are attractive, investors should consider the long-term benefits of dividend growth and company quality. SCHD's strategy offers a potentially more sustainable income stream and better protection against inflation, making it a valuable option for long-term investors.

Keywords: Schwab US Dividend Equity ETF, SCHD, dividend yield, dividend growth, ETFs, Invesco High Yield Equity Dividend Achievers ETF, PEY, retirement income, investment strategy, inflation, S&P 500, income investing

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