The Dividend ETF Quietly Delivering Double-Digit Returns While Most Investors Aren't Paying Attention
This ETF's hot run might catch your attention, but there are plenty of other reasons to buy and hold it now.
Since the frenzy surrounding artificial intelligence (AI) stocks took hold on Wall Street, many non-tech equities have taken a backseat. Recently, however, capital has begun to shift back into alternative market segments. The Schwab U.S. Dividend Equity ETF (SCHD +0.73%) has gained 26% over the past year, without considering the dividends it pays.
The surge can be attributed to the fact that numerous dividend-paying corporations hail from outside the technology sector. Here's what could be causing this shift and why it might continue. For about three years, AI stocks have been the sole focus of the market. Consequently, other sectors have lagged behind. This explains the remarkable performance of the Schwab U.S. Dividend Equity ETF over the past year.
The ETF mirrors the Dow Jones U.S. Dividend 100™ Index, a collection of well-established U.S. companies known for their consistent dividend payments, and even frequent increases. Technology stocks make up less than 10% of the Schwab U.S. Dividend Equity ETF, while the rest is allocated to sectors like: In essence, the ETF serves as a counterbalance to the AI trade.
While I do not predict the demise of the AI trade, it is inevitable that investors will eventually favor sectors they deem to offer greater value. The Schwab U.S. Dividend Equity ETF has a promising future, as its holdings are currently trading at an average price-to-earnings ratio below 20. This represents a fair valuation for many prominent dividend stocks in the ETF, including established blue-chip companies such as Texas Instruments, Procter & Gamble, Coca-Cola, Chevron, and others.
Furthermore, the ETF provides a solid 3.2% dividend yield, and Schwab has increased the fund's distribution by over 550% since its launch in late 2011. With an expense ratio of just 0.06%, it is a cost-effective investment option compared to other funds. Finally, the ETF remains a valuable addition to most portfolios due to its high yield and limited exposure to technology stocks.
At present, the S&P 500, which serves as a benchmark for most investors when discussing the overall U.S. stock market, is approximately 37% concentrated in tech stocks. Considering all these factors, incorporating some shares of the Schwab U.S. Dividend Equity ETF into a portfolio could be a prudent decision, irrespective of the future trajectory of the AI trade.
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