Schwab U.S. Dividend Equity ETF Achieves 12.9% Return with Top Holdings Strategy
The Schwab U.S. Dividend Equity ETF (SCHD) has proven to be a successful investment vehicle since its inception in October 2011. It boasts an impressive 12.9% annualized return, showcasing the power of dividend investing.
Investment Strategy of Schwab U.S. Dividend Equity ETF
The ETF employs a straightforward strategy by tracking the Dow Jones U.S. Dividend 100 Index. This index includes the 100 leading high-yield dividend stocks, selected based on four key dividend quality metrics:
- Dividend yield
- Five-year dividend growth rate
- Dividend policy
- Overall company performance
Companies that consistently grow their dividends have shown superior long-term returns. Recent research reveals:
| Dividend Policy | Average Annual Total Returns |
|---|---|
| Dividend growers & initiators | 10.2% |
| Dividend payers | 9.2% |
| No change in dividend policy | 6.8% |
| Dividend cutters & eliminators | -0.9% |
| Dividend non-payers | 4.3% |
| S&P 500 index (equal-weighted) | 7.7% |
Performance of Top Holdings
Among the ETF’s top holdings are industry giants Coca-Cola and PepsiCo. The fund allocates 4% to each, both known for their strong dividend growth. Notably:
- Coca-Cola offers a 2.6% dividend yield and has increased its payout by 4%, marking 64 years of consecutive growth.
- PepsiCo also raised its dividend by 4%, achieving 54 years of annual increases with a 3.4% yield.
Long-Term Outlook
The long-term performance of both companies indicates their potential for continued dividend growth. Since 1990, Coca-Cola has delivered a 10.6% annualized return, while PepsiCo has achieved 10.4%.
Looking ahead, Coca-Cola aims for 4%-6% annual organic revenue growth and 7%-9% earnings-per-share growth. PepsiCo has set similar targets for sustainable growth.
Conclusion: A Winning Strategy
The Schwab U.S. Dividend Equity ETF capitalizes on high-yield dividend growth stocks, benefiting from increasing dividend payouts. This strategy not only provides steady income but also enhances share price appreciation. Investors can view SCHD as a promising long-term investment opportunity.
