For income investors seeking reliable returns, dividend exchange-traded funds (ETFs) present an attractive opportunity. Unlike individual dividend stocks, which can be challenging to select and track, dividend ETFs provide the advantages of dividends along with the benefits of diversification. This is especially beneficial in today’s market, where pinpointing standout stocks for long-term growth can be daunting. High-growth options like Nvidia, for instance, may offer impressive returns but provide minimal payouts, often not justifying the investment for income-focused investors.
Among the plethora of dividend ETFs available, the Schwab U.S. Dividend Equity ETF (SCHD) emerges as a top choice for 2025. Managed by Charles Schwab Asset Management, this ETF tracks the Dow Jones U.S. Dividend 100 Index, targeting companies with a solid history of paying dividends. Stocks included in this fund are chosen based on their superior fundamentals, ensuring investors can access quality holdings.
One of the ETF’s most appealing features is its low expense ratio of just 0.06%, translating to annual fees of only $6 for every $10,000 invested. This affordability, combined with substantial total net assets of $71 billion, provides a solid foundation for potential investors. The ETF’s holdings are heavily weighted toward sectors known for consistent dividend payouts, such as healthcare, consumer goods, industrials, and energy.
The top ten holdings of SCHD reflect this strategic focus:
– AbbVie: 4.22% portfolio weight, 3.0% dividend yield (Healthcare)
– ConocoPhillips: 4.10% portfolio weight, 3.3% dividend yield (Energy)
– Chevron: 4.09% portfolio weight, 4.3% dividend yield (Energy)
– Home Depot: 4.08% portfolio weight, 2.2% dividend yield (Consumer cyclical)
– Lockheed Martin: 4.08% portfolio weight, 2.7% dividend yield (Industrial)
– Cisco Systems: 4.04% portfolio weight, 2.4% dividend yield (Technology)
– Verizon Communications: 4.01% portfolio weight, 6.4% dividend yield (Communication services)
– Amgen: 3.99% portfolio weight, 3.4% dividend yield (Healthcare)
– Altria Group: 3.97% portfolio weight, 6.5% dividend yield (Consumer defensive)
– Coca-Cola: 3.91% portfolio weight, 3.1% dividend yield (Consumer defensive)
While the ETF maintains a consistent payout schedule, the actual amounts may fluctuate based on the varying dividend schedules of the underlying companies. This variability is an important consideration for investors relying on predictable income streams.
The SCHD ETF’s attractiveness is further enhanced by its competitive yield. It differentiates itself from other funds — for example, the Vanguard High Dividend Yield Index Fund ETF yields more than a full percentage point lower, while broader index funds such as the Vanguard Value Index Fund ETF and the Invesco QQQ Trust offer yields of around 2.1% and 0.5%, respectively.
Despite its strengths, one potential drawback of the SCHD ETF is its limited exposure to the technology sector, which has been the standout performer in recent years. Although SCHD includes some notable tech companies, many tech giants that are leading growth do not offer dividends, thus limiting their inclusion.
For investors primarily focused on generating income through dividends, the SCHD ETF represents a compelling option and could well serve as a key holding in a diversified portfolio. However, those interested in capitalizing on emerging trends, such as advancements in artificial intelligence, may also want to consider allocating funds to technology-focused ETFs or individual stocks in that sector to achieve a more balanced investment strategy.
