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Should Schwab U.S. Dividend Equity ETF (SCHD) Be on Your Investing Radar?

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The Schwab U.S. Dividend Equity ETF (SCHD - Free Report) was launched on 10/20/2011, and is a passively managed exchange traded fund designed to offer broad exposure to the Large Cap Value segment of the US equity market.

The fund is sponsored by Charles Schwab. It has amassed assets over $29.73 billion, making it one of the largest ETFs attempting to match the Large Cap Value segment of the US equity market.

Why Large Cap Value

Large cap companies usually have a market capitalization above $10 billion. Overall, they are usually a stable option, with less risk and more sure-fire cash flows than mid and small cap companies.

Value stocks have lower than average price-to-earnings and price-to-book ratios. They also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.06%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 2.85%.

Performance and Risk

SCHD seeks to match the performance of the Dow Jones U.S. Dividend 100 Index before fees and expenses. The Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios.

The ETF has gained about 26.24% so far this year and it's up approximately 37% in the last one year (as of 10/26/2021). In the past 52-week period, it has traded between $54.80 and $78.19.

The ETF has a beta of 0.96 and standard deviation of 22.79% for the trailing three-year period, making it a medium risk choice in the space. With about 104 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab U.S. Dividend Equity ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, SCHD is a good option for those seeking exposure to the Style Box - Large Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 1000 Value ETF (IWD - Free Report) and the Vanguard Value ETF (VTV - Free Report) track a similar index. While iShares Russell 1000 Value ETF has $56.77 billion in assets, Vanguard Value ETF has $87.66 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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