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An ETF For Cost-Conscious Dividend Investors

ETF Professor

A major reason why Charles Schwab Corp (NYSE: SCHW) is a force in the exchange-traded funds business and now the fifth-largest U.S. ETF issuer is that Schwab ETFs are among the least expensive on the market.

That is right. In some segments, including both equities and fixed income, Schwab is able to undercut even Vanguard, the supposed low-cost leader of the fund world, on fees. Just look at the Schwab Strategic Trust (NYSE: SCHD). SCHD charges a scant 0.07 percent per year, or just seven $7 on a $10,000 investment. No dividend ETF is less expensive.

Appeal Of SCHD

Add to that, investors can realize more savings if they are Schwab clients, because they can trade the ETF without commissions on the firm's ETF OneSource platform.

The low fee is certainly a selling point, but there is more to like about SCHD.

Related Link: A Scientific Approach To Multi-Factor Investing

“Relative to its large-cap dividend-oriented peers, this fund will likely generate an income stream that is more stable and that should grow with time. This is reflective of the methodology of its underlying benchmark, which specifically targets high-quality, steady dividend payers, and is not--as some of competing funds' benchmarks are--tuned to isolate constituents exclusively on the basis of high current and/or prospective payouts or yields,” said Morningstar in a recent note.

SCHD, home to nearly $4.2 billion in assets under management, holds 114 stocks, all of which have boosted dividends for at least 10 consecutive years. With a focus on dividend consistency and growth, it is not surprising that SCHD's largest sector weight is consumer staples at over a quarter of the ETF's weight.

However, SCHD also has one of the largest allocations to technology stocks among all dividend ETFs at nearly 21.5 percent. That is notable for multiple reasons, including tech's dividend ascent over the past few years and the sector's stout cash piles, which should ensure dividend growth going forward.

Value And Wide-Moat Firms

For factor fans, SCHD can be deemed a quality ETF with some value exposure. Importantly, many of SCHD's holdings are considered wide-moat firms by Morningstar.

“Wide-moat stocks are those that Morningstar analysts believe to possess sustainable competitive advantages, and as such, will likely earn returns on invested capital in excess of their cost of capital over the long term. During the past three years, stocks constituting 63% of the value of the fund's portfolio received a wide moat rating from our analysts, on average. This is the highest allocation to wide-moat names among all dividend-oriented ETFs,” added Morningstar.

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