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Cost Efficiency And Quality With This Dividend ETF

by
April 18, 2016 4:10 pm
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It is a blanket statement, but it is not a stretch to say everyone likes a good deal and everyone likes generating additional income. There is no dearth of dividend exchange-traded funds purporting to offer either or both of those traits.

Schwab Strategic Trust’s Appeal

Not all excel at those endeavors on par with the Schwab Strategic Trust (NYSE: SCHD). One of the superficial perks of SCHD is that its annual fee of 0.07 percent, or $7 per $10,000 invested – the lowest among all U.S. dividend ETFs. Add to that, investors can realize more savings if they are Schwab clients, because they can trade the ETF without commissions on the firm's ETF OneSource platform.

Those are the type of statistics that get investors interested, but SCHD has to offer more to keep investors around. The ETF does that as well. SCHD has amassed more than $3.3 billion in assets under management in less than five years on the market. More important is what SCHD offers dividend investors and that includes emphasizing quality along with dividend growth potential.

Related Link: Did You Own A Dividend ETF In The First Quarter?

A Little More About SCHD

SCHD, which tracks the Dow Jones Dividend 100 Index, holds 112 stocks. All of the ETF's holdings have dividend increase streaks of at least 10 years. Some of SCHD's holdings, including Dow components Johnson & Johnson (NYSE: JNJ), The Coca-Cola Co (NYSE: KO) and Procter & Gamble Co (NYSE: PG), have some of the longest dividend increase among all U.S. companies.

SCHD “can also be used in a more targeted fashion as a source of equity income. Relative to its large-cap dividend-oriented peers, this fund will likely generate an income stream that is more stable and that should grow with time. This is reflective of the methodology of its underlying benchmark, which specifically targets high-quality, steady dividend payers, and is not–as some of competing funds' benchmarks are–tuned to isolate constituents exclusively on the basis of high current and/or prospective payouts or yields,” said Morningstar in a recent note.

SCHD's 24.4 percent weight to consumer staples stocks is somewhat predictable, but where this ETF stands out at the sector level is with its technology weight. Few dividend ETFs can touch SCHD's 21.7 percent weight to the sector. That is notable for multiple reasons, including tech's dividend ascent over the past few years and the sector's stout cash piles, which should ensure dividend growth going forward.

Due to the 10-year dividend increase requirement, SCHD does not hold shares of Apple Inc. (NASDAQ: AAPL), but Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC) are among the ETF's top 10 holdings.

Related Link: A Hidden Gem Among Dividend ETFs

Among SCHD's other benefits is a lineup chock full of wide-moat stocks.

“Regressing the fund's historical returns against a variety of risk factors shows that SCHD's loading on the quality factor is greater than that of almost all other dividend-oriented ETFs. The Morningstar Economic Moat Rating is another useful way to gauge the quality of an equity portfolio. Wide-moat stocks are those that Morningstar analysts believe to possess sustainable competitive advantages, and as such, will likely earn returns on invested capital in excess of their cost of capital over the long term,” added Morningstar.

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