Why SCHD Is Still the King of Dividend ETFs

"SCHD's performance has been -0.25% in the past year, as of this writing. It only turns positive when you factor in the dividends. If you stretch the timescale back to the start of 2022, SCHD has again only appreciated by some 2% since then. So, is it time to dump SCHD once and for all and move elsewhere? I disagree, and here's why."

"SCHD is the kind of ETF you want to hold over decades, and if there are stretches where it underperforms, that is to be expected. Let's take a look at what caused SCHD to underperform recently. First things first, though, I'll begin by taking a look at the aforementioned VYM ETF. It's performing very well and comes with a 2.41% dividend yield."

"That's nowhere near SCHD's 3.78%, but the capital appreciation is still enough for a dividend investor to contemplate ditching SCHD for VYM. But do you know what the secret is? VYM's largest holding is with an 8.24% weighting. This is followed by at 4.17%. Financials and Technology stocks together constitute some 39% of VYM. As expected, it has done very well, but the downside risk is quite high."

"It's completely okay to trim some SCHD holdings if you want to chase more growth, but you may be taking on more risk, especially with certain ETFs. Covered-call ETFs are drawing lots of attention right now, as they are tracking popular tech indices that have done really well. Some of them give you a double-digit yield and healthy upside through options."

SCHD recorded -0.25% price performance over the past year and about 2% appreciation since early 2022, with dividends converting the total return to positive. SCHD yields roughly 3.78%, which materially boosts long-term total return when dividends are reinvested. VYM yields about 2.41% but has produced stronger capital appreciation due to larger concentration in a few big holdings and heavy Financials and Technology exposure, increasing downside risk. Covered-call and higher-yield ETFs can offer bigger immediate payouts but introduce different risks. Maintaining SCHD can provide portfolio ballast and steady dividend-driven returns across decades.

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