SCHD: Left Behind By The Generative AI Hype, Buy For Long-Term Diversification

seekingalpha04-13

chengyuzheng We previously covered Schwab U.S. Dividend Equity ETF (NYSEARCA:NYSEARCA:SCHD) in November 2023, discussing why it remains a great Buy despite the underwhelming performance on a YTD basis...

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Diversification\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-13 22:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4683382-schd-etf-left-behind-by-generative-ai-hype-buy-for-long-term-diversification><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>chengyuzheng We previously covered Schwab U.S. Dividend Equity ETF (NYSEARCA:NYSEARCA:SCHD) in November 2023, discussing why it remains a great Buy despite the underwhelming performance on a YTD basis...</p>\n\n<a href=\"https://seekingalpha.com/article/4683382-schd-etf-left-behind-by-generative-ai-hype-buy-for-long-term-diversification\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AVGO","symbol_name":"博通","start_time":0,"source_url":"https://seekingalpha.com/article/4683382-schd-etf-left-behind-by-generative-ai-hype-buy-for-long-term-diversification","article_id":"2427408597","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1393586855/image_1393586855.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2427408597","pubTimestamp":1713016800,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"chengyuzheng We previously covered Schwab U.S. Dividend Equity ETF (NYSEARCA:NYSEARCA:SCHD) in November 2023, discussing why it remains a great Buy despite the underwhelming performance on a YTD 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staple stocks suffer from minimal inflationary tailwinds. With the ETF consistently being well supported at the $66s, we believed that opportunistic investors might consider adding at those levels for an improved margin of safety. In this article, we shall discuss why SCHD remains a Buy for dividend-oriented investors seeking sustainable payouts, with the recent rebalancing only triggering improved portfolio mix and upside potential. At the same time, with the macro outlook and the wider market still volatile, we have recommended waiting for a moderate retracement for an improved margin of safety and expanded dividend yields.  The SCHD Investment Thesis Is Deservingly Underwhelming For Now  As someone whom currently owns the SPY, QQQ, and the Magnificent 7, amongst others, we can understand why SCHD has been unloved thus far, as it underperforms the wider market and the big-name high-growth stocks currently boasting elevated FWD valuations. SCHD Performance Since Chat-GPT Was Launched Trading View For context, SCHD has underperformed at +0.71% since the introduction of Chat-GPT in November 2022, compared to the wider market, SPY at +26.1%, and the tech-based ETF, QQQ at +49.4%. Much of the exuberance is naturally attributed to Nvidia's (NVDA) double-digit growth and the insatiable demand for generative AI, spurring the stock's impressive rally of +415.7% over the same time period. In our opinion, this phenomenon precisely demonstrates the appeal of SCHD, since the ETF is meant to be part of a well-diversified portfolio instead of an all-in situation. SCHD Rebalancing SCHD For example, after the recent portfolio reshuffling effective March 18, 2024, SCHD's top ten holdings look rather different indeed, with Broadcom (AVGO), Amgen (AMGN), Coca-Cola (KO), Merck (MRK), AbbVie (ABBV), and Home Depot (HD) displaced, and replaced with Chevron (CVX), Cisco (CSCO), Lockheed Martin (LMT), Bristol Meyers (BMY), Blackrock (BLK), and Pfizer (PFE) instead. None of these stocks scream high-growth at all, with AVGO already entirely removed from the portfolio as the stock rallies by +139.9% since November 2022 and the rally naturally impacting its forward dividend yields from the 4Y average of 2.83% to 1.57% at the time of writing. A moderation in weightage has also been observed with VZ, with the recovering market sentiments surrounding US-based telecoms triggering the stock's +32.1% recovery since the October 2023 bottom, similarly impacting its dividend yields from the previous heights of 8.55% to 6.53% instead. SCHD's Forward Dividend Yield Seeking Alpha It is immediately apparent from SCHD's new portfolio mix, that the aim of the rebalancing is to consistently pay out \"the highest dividend yields,\" while also seeking out undervalued stocks. For example, Texas Instruments' (TXN) upgraded weightage to the top SCHD holding is no mistake, with the stock offering an impressive 5Y Dividend Growth Rate of +12.81% compared to the sector median of +8.03%. The same has been observed with United Parcel Service (UPS) at +11.96%/ +6.96% and BLK at +10.07%/ +6.43%, respectively. At the same time, CVX recently raised their quarterly dividends by +7.9%, along with LMT at +5% and PepsiCo (PEP) at +7%, further underscoring SCHD's focus on sustainable dividend growth. As for CSCO, BMY, and PFE, these stocks are generally undervalued compared to their historical means and the sector medians, with the Seeking Alpha Quant still rating their dividend payouts to be safe thus far. While it remains to be seen when sentiments surrounding these downtrodden stocks may recover, attributed to their uncertain reversals, we believe that there are promising intermediate term upside potentials given the stocks' sluggish performances thus far. SCHD Performance Since Chat-GPT Was Launched Trading View For now, SCHD's performance of +0.71% since November 2022 has also been unsurprisingly mirrored by multiple dividend-focused ETFs, such as:  iShares Select Dividend ETF (NASDAQ:DVY) at -4.86%, SPDR S&P Dividend ETF (NYSEARCA:SDY) at -2.60%, Vanguard High Dividend Yield ETF (NYSEARCA:VYM) at +4.33%, and iShares Core High Dividend ETF (NYSEARCA:HDV) at +0.30%.  This is because the focus of the SCHD ETF is to deliver quality and sustainable dividends, not high growth, therefore explaining why it may have underperformed outsized expectations during this first leg of the bull market.  So, Is SCHD ETF A Buy, Sell, or Hold?  SCHD 3Y ETF Price Trading View For now, SCHD has already charted an impressive recovery of +14.3% since the October 2023 bottom, while peaking by April 2024.  As with dividend stocks/ ETFs, we believe that the key gauge to the entry point will be to its forward yields, currently at an underwhelming number of 3.36%. This is compared to the US Treasury's rich yields of between 4.62% and 5.37%, attributed to the still elevated inflation.  Then again, as a result of the volatile past few years and the uncertain intermediate future, anyone looking to \"beat the market\" with SCHD may have sorely misunderstood the ETF's investment thesis indeed, with things only to improve once the macroeconomic outlook normalizes. In addition, with the market's darling, NVDA, already entering \"correction territory,\" the tech market \"skewed to the downside,\" and the SPY trading sideways as we enter the Q1'24 earnings season, we believe that there many be more volatility in the near term, with SCHD likely to return to its previous trading ranges of between $70 and $74.  As a result, while we may reiterate our long-term Buy rating for diversification purposes, it comes with a specific caveat for readers to wait for a moderate retracement for expanded forward yields and improved margin of safety, with the rising CBOE Volatility Index implying that the bears may be in control at the moment.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2427408597"}