Key Points
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The Schwab U.S. Dividend Equity ETF (SCHD) is a low-cost index fund that holds 102 stocks from big companies that pay steady dividends.
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SCHD might be a relatively “safe” choice in a bear market for tech stocks.
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Based on the past 15 years of historical SCHD returns, a $100 monthly investment could grow to $359,492 after 30 years.
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High-yield dividend stocks are often discussed as being “safer” or “steadier” than tech stocks — but that relative sense of safety comes at a price. Dividend stocks often don’t grow as fast as the best tech stocks. That’s because companies that pay strong dividends tend to be mature, well-established companies. They have strong business models and solid balance sheets, but they’re unlikely to see their share prices skyrocket as some of the best artificial intelligence (AI) stocks have in recent years.
However, if you’re feeling nervous about AI stocks and want to diversify some of your investments into a different part of the market, buying high-yield dividend exchange-traded funds (ETFs) could be a good strategy. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the best dividend index funds.
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Let’s look at why SCHD might be a good buy in the event of an AI stock sell-off, and how much money you could earn by investing $100 per month in SCHD.
Why buy SCHD? 102 high-yield dividend stocks
The Schwab U.S. Dividend Equity ETF holds 102 stocks and tracks the performance of the Dow Jones U.S. Dividend 100 Index. These are large-cap companies known for the quality and sustainability of the dividends that they pay to investors. SCHD charges a low expense ratio of 0.06%.
If you’re worried that the AI trade has taken over the stock market, SCHD could give you some meaningful diversification away from AI stocks. Tech stocks make up only about 12.2% of the SCHD portfolio. The top stock holdings in SCHD include energy stocks like ConocoPhillips and Chevron, healthcare stocks like UnitedHealthcare and Merck, and consumer staples giants like Procter & Gamble and Coca-Cola.
These are not AI stocks. There’s no guarantee that any ETF is “safe” from a bear market, but SCHD generally holds a different mix of companies than the tech ETFs that some investors are worried about.
How much could you earn with $100 per month invested in SCHD?
The Schwab U.S. Dividend Equity ETF has delivered annualized returns of about 9.5% over the past five years. That’s a decent return, but less than that of the S&P 500.
But over the longer run, SCHD has done even better. The fund was established in October 2011, and since then it has delivered a 15-year track record of 13.11% annualized returns.
Let’s say you invest $100 per month in SCHD, and although returns are not guaranteed, let’s assume the fund continues to deliver that same 13.11% annualized return. After five years, your investment would grow to $7,793. After 10 years, you’d have $22,222. After 20 years, you’d have $98,394. And after 30 years, you’d have $359,492.
Should you buy stock in Schwab U.S. Dividend Equity ETF right now?
Before you buy stock in Schwab U.S. Dividend Equity ETF, consider this:
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and Merck. The Motley Fool recommends ConocoPhillips and UnitedHealth Group. The Motley Fool has a disclosure policy.
