The Schwab U.S. Dividend Equity ETF Overview
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a favored choice among dividend-focused investors. This ETF comprises 100 high-quality dividend stocks and follows the Dow Jones U.S. Dividend 100 Index, which evaluates companies based on their dividend quality.
Investment Opportunities
Due to its structure, this ETF serves as a valuable resource for investors seeking to enhance their income portfolios with premium dividend stocks. Currently, the Schwab U.S. Dividend Equity ETF’s leading two holdings are industry giants ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX). Below is a deeper analysis of why these top oil stocks are favored.
ETF Size and Popularity
With more than $70 billion in assets under management, the Schwab U.S. Dividend ETF ranks as the second-largest ETF specifically targeting dividend stocks.
Dividend Quality Focus
The ETF’s popularity among investors is significantly attributed to its emphasis on dividend quality. It tracks the Dow Jones U.S. Dividend 100 Index, which seeks to measure the performance of high-yielding dividend stocks that have a history of consistent dividend payments. The selection process involves assessing companies based on their financial strength relative to industry peers.
Annual Reconstitution and Portfolio Updates
The fund reconstitutes its holdings each year, ensuring it features the top 100 dividend stocks based on payout quality. Recently, it replaced 23 stocks, opting for 23 with superior payoffs. The current allocations show that ConocoPhillips comprises 4.6% of the ETF’s assets while Chevron accounts for 4.4%.
Dividend Yield and Growth Potential
Investors looking to create dividend income might consider investing in this ETF directly. It provides access to 100 leading dividend stocks with an appealing combined dividend yield of 3.7%, based on the latest dividends from the fund, significantly surpassing the S&P 500’s yield of 1.3%. Alternatively, they may select individual holdings from the fund to complement their existing dividend portfolios.
Chevron and ConocoPhillips as Leading Companies
Chevron stands out as an elite dividend stock with a record of increasing its dividend for 38 consecutive years. The company has outpaced the S&P 500 in dividend growth over the past five years, yielding 4.1% currently. It anticipates generating an additional $10 billion in annual free cash flow by 2026, driven by strong production growth and cost-reduction strategies.
In contrast, while ConocoPhillips may not have Chevron’s extensive track record, it has consistently raised its dividend since 2016, showing significant growth recently. Its target is to deliver dividend growth within the top 25% of S&P 500 companies, powered by effective acquisitions and a solid investment strategy. Hence, it’s clear why both Chevron and ConocoPhillips lead the Schwab U.S. Dividend Equity ETF, given their high-yield dividends that are projected to continue growing.
