SCHD: Built For Winners

seekingalpha07-31

If you are looking to hit it big—move on, this article is not for you.Schwab U.S. Dividend Equity ETF™ is for “emotionally intelligent” investors that like healthy growing dividends, lower-volatility ...

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href=https://seekingalpha.com/article/4708183-schd-built-for-winners><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>If you are looking to hit it big—move on, this article is not for you.Schwab U.S. Dividend Equity ETF™ is for “emotionally intelligent” investors that like healthy growing dividends, lower-volatility ...</p>\n\n<a href=\"https://seekingalpha.com/article/4708183-schd-built-for-winners\">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":"LU1221951046.USD","symbol_name":"NORDEA 1 STABLE RETURN \"HM\" (USDHDG) 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to hit it big—move on, this article is not for you.Schwab U.S. Dividend Equity ETF™ is for “emotionally intelligent” investors that like healthy growing dividends, lower-volatility returns and prudent diversification (especially as top growth stocks still appear precipitously overvalued).After reviewing the SCHD ETF in detail (including the risks), we conclude with our strong opinion on investing.  SCHD: Built for Winners, Blue Harbinger Research Yellow duck/iStock via Getty Images If you are looking to hit it big—move on, this article is not for you. If you are looking for healthy returns, healthy dividend income and healthy diversification (especially as certain mega cap growth stocks may seem precipitously overvalued), keep reading, this article might be for you (especially if you also like low fees, low volatility and low taxes). In fact, all of these things, and more, combine to make the Schwab U.S. Dividend Equity ETF™ (NYSEARCA:SCHD) a compelling opportunity for “emotionally intelligent” investors. And after reviewing the fund in detail (including the risks), we conclude with our strong opinion on investing. Overview: Schwab US Dividend Equity ETF - SCHD SCHD is a low-cost (0.06% annual fee) exchange-traded fund (“ETF”) with ~100 positions diversified across market sectors, but with a tilt towards value stocks instead of growth.   Charles Schwab For example, here is a look at SCHD’s recent sector weights, which are concentrated toward value sectors (like financials, health care and consumer staples) and away from growth sectors (like information technology). Charles Schwab For perspective, here is a look at the recent top 10 holdings (noticeably missing the popular mega-cap growth stocks like Amazon (AMZN), Tesla (TSLA), Nvidia (NVDA), Alphabet (GOOGL), Meta (META), Apple (AAPL) and Microsoft (MSFT)). Charles Schwab (HD) (ABBV) (CSCO) (AMGN) (CVX) (LMT) (BLK) (VZ) (KO) (UPS) (SCHW). The fund also offers a relatively large dividend yield (3.6%), and the income (paid quarterly) is focused on qualified dividends (i.e., they’re eligible for the lower qualified dividend tax rate, instead of your ordinary income tax rate). Seeking Alpha The fund’s goal is to track the total return of the Dow Jones U.S. Dividend 100™ Index (the index is focused on the quality and sustainability of dividends), and it has succeeded so far (the fund’s beta to that index is 1.0). Charles Schwab Furthermore, the fund’s beta to the S&P 500 is below 1.0, an indication that SCHD is less volatile than the overall market (something many investors want). According to Schwab, SCHD invests in “stocks selected for fundamental strength relative to their peers, based on financial ratios.” Also worth mentioning, SCHD recently had over $54.6 billion in total assets, which basically equates to “cult status” in the ETF world (it’s the 26th largest ETF), and this also helps keep the fund’s total expense ratio down (economies of scale). Historical Performance: Growth Vs. Value Past performance does not guarantee future results, but given this fund’s distinct value focus (see style box earlier), it is meaningful to consider the relative past performance of value stocks versus growth stocks. And for starters, let’s consider how value stocks performed versus growth stocks when the “tech bubble” burst in 2000, as you can see in the following chart (orange line: value, purple line: tech-heavy Nasdaq 100 (QQQ)). Ycharts As illustrated by the chart above, growth and tech stocks performed incredibly poorly when the tech bubble burst, especially as compared to value stocks. Note: We are using the large cap value index (IWD) as a proxy for SCHD because SCHD didn’t even exist until 2011. However, we can see in the next chart that more recently value (including SCHD) has been underperforming growth. Ycharts And of course, timeframe makes a big difference. Here is a look at the performance of growth and value since before the tech bubble peaked. Ycharts As you can see, value stocks dramatically outperformed growth stocks for years when the tech bubble burst. And this is important today considering growth stocks have performed so well relative to value (an increasing chorus of investors are wondering if we’re due for a major growth stock correction).   JP Morgan Guide to the Markets Emotionally Intelligent Investing: It’s worth taking a moment to consider “emotionally intelligent” investing, as it relates to SCHD. For example, you can see in the graphic below, SCHD basically checks all the boxes. Blue Harbinger For example, investors don’t typically buy SCHD out of fear or greed (i.e., they’re not trying to “hit it big,” and they’re not burying their heads in the sand either). Instead, they buy SCHD because they’re looking for lower-volatility performance, from quality companies that offer healthy growing dividends. Also, SCHD investors don't overestimate their expertise. Instead, they're investing in a quality, professionally managed (i.e., time-saving) strategy to achieve their goals. And they don't dwell on past performance, either. For example, just because growth stocks have outperformed SCHD recently, that doesn't mean that will always be the case. SCHD returns have been more than “good enough” and we expect them to continue to help investors achieve their goals. Furthermore, the expense ratio on SCHD is very low (0.06%), which means investors aren't overpaying for hype (i.e., they're not chasing the latest thing), they're not trying to get rich quick, and they're not necessarily drinking the latest social media Kool-Aid. They're also being sensible regarding taxes considering the dividends are generally “qualified” (i.e., taxed at the lower rate, depending on your individual tax situation). And most importantly, SCHD allows investors to remain focused on their goals (depending on your situation, SCHD can be an excellent goal-focused strategy). Risks: Of course, there are also risks to investing in SCHD. For example:  Market Risk: SCHD owns dividend-value stocks, and even though they’ve historically been less volatile than the overall stock market, they are still volatile, and they can still go down in price. We can see this in our earlier performance charts, and investors should keep this risk in mind if they are going to own SCHD. Style Risk: Although SCHD is diversified across ~100 different companies from across all 11 GICS market sectors, SCHD still has some style risk. In particular, it is tilted toward higher-dividend value stocks. And while these types of stocks can exhibit many attractive qualities, they can also underperform high-growth stocks for extended periods of time (as we saw in our earlier performance charts). Implementation Risk: SCHD is a fairly straightforward strategy, and Schwab is a fairly well respected (in some circles) investment company. However, that doesn’t mean the fund cannot make mistakes in implementing its strategy (everything from its use of securities lending, to a few derivatives, and fees) can all lead to mistakes and performance tracking error versus the benchmark. Nonetheless, the fund is not overly complex, and Schwab has a growing track record of success with the strategy.  Conclusion  If you are looking to bet on volatile moonshots, you might consider our recent article on Enovix (ENVX) (i.e., your smartphone needs a better battery). But if you are looking for healthy growing dividends and lower market volatility, you might consider owning SCHD instead (we like it enough to include it as an “honorable mention” in our new report, Top 10 Big Yields). Disciplined, goal-focused, long-term investing continues to be a winning strategy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"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":"4.29.2","shortVersion":"4.29.2","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/2455962059"}