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ETF Talk: A New Dividend-Driven Schwab Fund

October 26, 2011
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One of the newest exchange-traded funds (ETFs) currently available to investors is the Schwab U.S. Divided ETF (SCHD). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Dividend 100 Index.
 
This ETF tracks high-yielding dividend stocks that are a favorite of many investors. If you are intrigued, you should know that the fund is designed to give you both income and capital appreciation. SCHD, which began trading just last week on Oct. 20, gives you access to the newest Dow Jones benchmark. The Dow Jones U.S. Dividend 100 Index is built to measure the performance of high-dividend yielding companies with strong fundamentals and a long history of dividend payments.
 
One of the biggest differences between the Dow Jones U.S. Dividend 100 Index and other indexes is its method for selecting stocks. Each company in the index is heavily scrutinized by its cash flow to debt ratio, five-year dividend growth rate, return on equity and dividend yield. These stocks also must have a dividend history of 10 consecutive years. Putting it simply, after Dow Jones ranks them, only the highest companies in those four categories are accepted into the index. Furthermore, each stock only can have a maximum weight of 5% in the index, and each sector is capped at 25%. So, this index is intended to hold a highly diversified group of 100 stocks with the strongest set of credentials.
 
The top 10 holdings of SCHD are considered some of the most stable investment plays available, and are all blue-chip stocks such as: Intel Corp., 4.9%; IBM, 4.7%; Exxon Mobil, 4.7%; Chevron Corp., 4.6%; Procter and Gamble, 4.4%; Johnson & Johnson, 4.2%; Coca-Cola, 4.0%; Wal-Mart Stores, 3.8%; PepsiCo Inc., 3.7% and McDonald’s, 3.6%.
 
With the investing community looking for safe havens, and desperately searching for both high yield and low risk, it is a perfect time for Schwab to be rolling out SCHD. Its launch has come with considerable media attention since last week. SCHD just adds to the lineup of dividend ETFs that currently are available to investors. The fund shares similar characteristics to iShares DJ Select Dividend (DVY) and SPDR S&P Dividend (SDY).
 
As always, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. I am happy to answer your questions, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.