Key Points
Schwab U.S. Dividend Equity ETF uses a complicated screening process to select 100 stocks.
When you break down the ETF's screening process, it basically does what most dividends investors do.
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Most investors don't pay nearly enough attention to the investment process. How you go about buying stock is really more important than what you actually buy. If you get the process of investing "right," what you buy will likely work out well for you more often than not over time. This is why I like Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).
What does Schwab U.S. Dividend Equity ETF do?
As for the process, Schwab U.S. Dividend Equity has locked itself in. The first step is to consider only stocks that have increased their dividends annually for at least 10 years (real estate investment trusts are excluded). This is a screen that many dividend investors use, too, because it quickly focuses the list of potential dividend investments on the strongest investment candidates.
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Some exchange-traded funds stop here, but most dividend investors don't. Schwab U.S. Dividend Equity goes the extra mile, too, creating a composite score that includes cash flow-to-total-debt, return on equity, dividend yield, and a company's five-year dividend growth rate. It buys the 100 stocks with the highest composite scores. The holdings are market-cap-weighted, so the largest companies have the greatest impact on performance. And the portfolio is updated annually, so investors can rest assured that they always own the most attractive dividend stocks.
Without going too deep into the details, the ETF is basically looking for financially strong, well-run businesses with attractive, growing dividends. That's pretty much what I'm looking for and, I believe, what most dividend investors are trying to achieve, too. And the expense ratio is a shockingly tiny 0.06%, which is very close to free by Wall Street standards.
Schwab U.S. Dividend Equity's results are impressive
Not only does Schwab U.S. Dividend Equity ETF offer an above market 3.3% yield, but the share price and dividend have grown steadily over time. That is exactly what a long-term dividend investor would hope to achieve if they managed their own portfolio.
The only problem with Schwab U.S. Dividend Equity ETF is the yield, which is probably a bit lower than the 4% that many dividend investors target. You can easily find ETFs with higher yields, but you will be hard-pressed to find another alternative that so closely mimics what dividend investors are trying to achieve. If you are looking for a dividend ETF in March, you should start your search, and maybe end it, with Schwab U.S. Dividend Equity ETF.
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Reuben Gregg Brewer has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
