If there’s one thing you can count on with the stock market, it’s uncertainty and volatility. But one way to offset some of this uncertainty is to invest in dividend stocks, since you get paid regardless of how a company’s stock price moves.
You can rarely go wrong with a dividend-focused exchange-traded fund (ETF), but it could be especially useful when the market is choppy or stagnant. It doesn’t have to mean sacrificing yields, either. Plenty of dividend ETFs have attractive yields today, including the Schwab U.S. Dividend Equity ETF (SCHD +0.87%).
It’s one of the smartest dividend ETFs you could invest $1,000 in right now. Here’s why.
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SCHD does a lot of the vetting for you
It can be easy to fall into a dividend yield trap, in which a stock looks attractive simply because it has a high dividend yield. The same goes for some dividend ETFs, which contain high-yield companies with bad businesses or unsustainable dividends.
With SCHD, you don’t have to worry too much about that problem because of the criteria it takes to be included in the fund. It tracks the Dow Jones U.S. Dividend 100 index, which requires companies to have at least 10 consecutive years of dividend increases, good cash flow relative to their debt, high return on equity, and competitive yields.
The criteria means lower-quality businesses don’t make the cut. It also means that SCHD leans more toward value and defensive sectors. Its top sectors are energy (19.88% of the ETF), consumer staples (18.5%), healthcare (16.2%), industrials (12.1%), and financials (9.68%). Notable companies include Lockheed Martin, Chevron, Coca-Cola, AbbVie, and Fifth Third Bancorp.
Schwab U.S. Dividend Equity ETF
Today’s Change
(0.87%) $0.27
Current Price
$30.66
Key Data Points
Day’s Range
$30.51 – $30.73
52wk Range
$23.87 – $31.95
Volume
195K
Consider consistently adding to your SCHD stake
Over the past decade, SCHD has averaged around a 12.5% total annual return. Of course, past performance doesn’t guarantee future returns, but if it continued averaging that over the next decade, a one-time $1,000 investment would more than triple in value.
SCHD has also averaged a 3.1% dividend yield in the past decade. That might only pay out $31 annually for $1,000 worth of shares, but it’ll grow as your investment compounds over time — especially if you continue to invest in it.
Even if SCHD averaged a 10% annual total return over 20 years, here’s how much your investment would be worth depending on how much you contribute monthly after your initial $1,000 investment:
Monthly ContributionsInvestment Value After 20 Years$100$75,450$250$178,550$500$350,370
Calculations by author via Investor.gov. Investment values are rounded down to the nearest ten.
With a 3% yield, those totals would pay out around $2,264, $5,356, and $10,511 annually.
Of course, this is all hypothetical, and there’s no way to predict how SCHD will perform. However, with its high-quality companies that have stood the test of time, it’s well-positioned to perform well over the long term.
