Is the Schwab U.S. Dividend Equity ETF a Buy Now?

Key Points

The Schwab U.S. Dividend Equity ETF owns 103 U.S. dividend stocks. Pros of this ETF include its juicy yield and attractive valuation. Cons include its subpar recent performance and high concentration in three sectors. 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›

Old sayings often convey a lot of wisdom. I especially like this adage: "Don't put all your eggs in one basket." In just eight words, the phrase teaches an important investing lesson about diversification.

If you're an investor looking for a proverbial basket, exchange-traded funds (ETFs) offer a great alternative. These funds allow you to buy shares of lots of companies in one fell swoop.

The Schwab U.S. Dividend Equity ETF(NYSEMKT: SCHD) ranks as one of the most popular ETFs among income investors. Is this ETF a buy now?Image source: Getty Images.

About the Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF's name reveals two key details about the fund. First, it's managed by the Charles Schwab Corporation(NYSE: SCHW), one of the biggest financial services companies. Schwab has been in business since 1971 and operates 31 ETFs.

This fund's name also discloses that it focuses on U.S. dividend stocks. Specifically, the Schwab U.S. Dividend Equity ETF holds 103 dividend stocks. Its top holdings include Amgen(NASDAQ: AMGN), Cisco Systems(NASDAQ: CSCO), AbbVie(NYSE: ABBV), Merck(NYSE: MRK), and The Coca-Cola Company(NYSE: KO).

The ETF attempts to track the total returns of the Dow Jones U.S. Dividend 100™ Index. This index, which is run by S&P Global(NYSE: SPGI), targets U.S. stocks with high dividend yields, great track records of paying dividends, and financial strength. Based on these criteria, it's not surprising that the index and the Schwab U.S. Dividend Equity ETF have significant stakes in several Dividend Kings that have increased their dividends for at least 50 consecutive years, such as AbbVie and Coca-Cola.

Like most passively managed ETFs, the Schwab U.S. Dividend Equity ETF doesn't charge outrageously high fees. Its annual expense ratio is a low 0.06%. This contributes to the fund's popularity with investors. The Schwab U.S. Dividend Equity ETF ranks as the second-largest dividend ETF based on total net assets.

Pros and cons of buying this ETF

The Schwab U.S. Dividend Equity ETF could be attractive to many investors for several reasons. Its juicy 30-day SEC yield of roughly 4% stands at the top of the list. The fund has paid dividends every quarter since its inception in October 2011.

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Valuation is another big plus. The overall stock market appears to be priced for perfection right now. However, the average price-to-earnings ratio for the stocks in the Schwab U.S. Dividend Equity ETF's portfolio is a reasonable 17.6.

The quality of the stocks in this ETF's portfolio is also appealing. The index that the ETF attempts to track focuses on dividend stocks that are the cream of the crop. The average market cap of the stocks owned by the Schwab U.S. Dividend Equity ETF is $134.3 billion. Their average return on equity is a lofty 28.5%.

There are a couple of knocks against this fund, though. Its performance in 2025 has been underwhelming. However, the Schwab U.S. Dividend Equity ETF has delivered a solid average annual total return of 12.4% since inception.

Another thing that some investors might not like is the ETF's concentration in a few sectors. Nearly 54% of the fund's portfolio is invested in just three sectors: energy, consumer staples, and healthcare.

Is the Schwab U.S. Dividend Equity ETF a smart pick now?

Should you buy the Schwab U.S. Dividend Equity ETF right now? I think it depends on your investing style.

Growth investors will probably want to look elsewhere. It's not hard to find plenty of ETFs that can deliver greater returns than the Schwab U.S. Dividend Equity ETF likely will.

On the other hand, I think this ETF is a great pick for income investors. The Schwab U.S. Dividend Equity ETF offers steady and attractive dividends and provides a reasonable level of diversification. If you're seeking income and don't want to put all your eggs in one basket, this ETF could be ideal.

Should you buy stock in Schwab U.S. Dividend Equity ETF right now?

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Charles Schwab is an advertising partner of Motley Fool Money. Keith Speights has positions in AbbVie. The Motley Fool has positions in and recommends AbbVie, Amgen, Cisco Systems, Merck, and S&P Global. The Motley Fool recommends Charles Schwab and recommends the following options: short December 2025 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.

Is the Schwab U.S. Dividend Equity ETF a Buy Now? was originally published by The Motley Fool

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