- Cash flow to total debt
- Return on equity
- Dividend yield
- 5-year dividend growth rate
Dividend ETFs In Focus
Amidst continued anxiety over the outlook for global equity markets, interest in dividend-focused strategies has surged. And many advisors and investors have elected to pursue access to dividend-paying stocks through exchange-traded products, embracing the transparency and efficiencies of the exchange-traded structure. There are dozens of funds offering exposure to dividend-focused strategies, including funds linked to dividend-weighted indexes and products that implement various dividend-focused screens to select component companies [see Four Factors To Consider When Evaluating Dividend ETFs]. Generally, dividend ETFs can be split between products that focus on consistency of distributions and those that value the absolute yield delivered more heavily. SCHD implements a unique approach; because stocks must have a long track record of distributions (i.e., ten years), the index will likely avoid smaller, more speculative companies whose beaten down stock prices have resulted in a hefty dividend yield. At the same time, the focus on various cash flow and profitability metrics along with yields and dividend growth rates should result in a portfolio that offers a distribution materially greater than the broad market [see Dividend ETF Faceoff: SDIV vs. VIG]. SCHD will charge an expense ratio of just 0.17%, making it one of the cheapest options available for investors looking to gain access to dividend-paying stocks. Like all Schwab ETFs, the new fund will be eligible for commission free trading within Schwab brokerage accounts [use the ETF Screener to see all ETFs available commission free].Under The Hood
SCHD has 100 components in total, and maintains a sector allocation that is considerably different from the broad U.S. market. Consumer goods firms account for the largest percentage of the underlying index at a little more than 20%, followed by industrials, consumer services, and health care. The smallest sector allocations are made to utilities, financials, and telecom; those three sectors combine to make up just about 5% of the underlying benchmark. That may be somewhat surprising considering the dividend-focused objective of the fund, as those three sectors are often home to some of the more attractive dividend yields on the market [25 Dividend ETFs For Yield Hungry Investors]. The list of component companies includes a number of blue chip U.S. stocks, such as Coca Cola, IBM, and Chevron. Of the ten largest stocks in the underlying index as of 8/31, six of them are also among the top ten single allocations in the S&P 500 Index Fund (IVV). According to the official fund fact sheet, the dividend yield on the underlying index at the end of August was 3.05%. At that time, the index had a P/E ratio of 13x and a P/B metric of about 2.9x.Disclosure: No positions at time of writing.
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