If there’s one thing the stock market can count on, it’s uncertainty and volatility. But one way to offset this uncertainty is to invest in dividend stocks, since you’ll be paid regardless of how the company’s share price moves.
It’s rare to go wrong by choosing a dividend-focused exchange-traded fund (ETF), but it can be especially useful when markets are volatile or stagnant. This doesn’t necessarily mean sacrificing yield, either. Today, many dividend ETFs offer attractive yields, including Schwab U.S. Dividend Stocks ETF (NYSE: SCHD).
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It’s one of the smartest dividend ETFs you can invest $1,000 in right now. Here’s why.
It’s easy to fall into the dividend yield trap, where a stock looks attractive simply because it has a high dividend yield. The same goes for some dividend ETFs, which contain high-yielding companies with poor businesses or unsustainable dividends.
With SCHD, you don’t have to worry too much about this issue as there are criteria that need to be met for inclusion in the fund. it tracks Dow Jones US Dividend 100 The index requires companies to have at least 10 consecutive years of dividend increases, good cash flow relative to debt, high return on equity and a competitive yield.
This standard means that lower quality companies cannot advance. This also means SCHD leans more toward value and defensive industries. Its main 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, AbbVieand fifth third bank.
Over the past decade, SCHD’s average annual total return has been approximately 12.5%. Of course, past performance is no guarantee of future returns, but if average performance continues over the next decade, a one-time $1,000 investment will more than triple in value.
SCHD also has an average dividend yield of 3.1% over the past decade. For $1,000 worth of stock, you may only pay $31 per year, but it will grow as your investment compounds over time—especially if you continue to invest.
Even if SCHD earns an average annual total return of 10% over 20 years, your investment would be worth as follows, based on your monthly contributions after your initial investment of $1,000:
