I Turned the SCHD Dividend ETF into Frankenstein’s Monster

I dissected the 99 stocks in the Schwab Dividend ETF, dug into the research for each and every company. I found the dividend yield, growth in earnings and revenue, the payout ratio and PE ratio for each along with the company’s operating profitability.

What I found is, there are pieces of the SCHD holding the dividend fund back. Stocks in the fund that are keeping you from collecting the highest dividend you can collect and companies that are overvalued and underperforming. So like any good stock nerd turned mad scientist, I’m picking out the best 15 stocks in the SCHD to make a fund with a monster yield. This isn’t going to be just the highest dividend possible though. I picked apart the fundamentals for each stock to find the 15 best investments with the strongest growth, the most sustainable dividend and the best value.

First let’s dig into the Schwab Dividend ETF, the SCHD you know. All you out there in the Nation know, this has been one of my favorite dividend funds for a long time. The fund is designed to invest in 100 US high-yielding dividend stocks with a record of consistent payments. And that sounds great but like a lot of ETFs, the actual stock picks tend to shift from the goal. So looking deeper into the fund, you start to question some of the stocks, especially on that ‘high yield’ objective.

While the 3.5% yield isn’t anything to get worked up over, the fund does make up for it in safety and total return. For example, when the high-flying tech stocks in the Nasdaq 100 fell 30% on higher interest rates in 2022, the SCHD fell just 10%.

Total return has also been something to put it on your radar. Against other high yield ETFs, you’re actually earning a much higher total return with the SCHD. The QYLD and AGNC monthly dividend stocks are supremely popular with yields of 12% and higher, drawing investors in for that cash flow but have produced total returns that have lost your money over the last five years. While the 3.5% cash yield you get on the SCHD makes it harder to pay the bills from your dividends, it makes up for it with an annualized return of 12% over five years.

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through dividend stocks, investing and ways to make more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.

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