The Schwab US Dividend Equity ETF (SCHD) has reached a major milestone this year, driven by robust investor inflows and solid market performance. The fund recently surpassed $100 billion in assets under management (AUM), making it the second-largest dividend ETF behind the Vanguard Dividend Appreciation ETF (VIG). With SCHD hitting this landmark, is it still a good investment at current levels?
SCHD ETF inflows are rising as it beats key benchmarks
The Schwab US Dividend Equity ETF has done well this year and is beating the top benchmark assets like the S&P 500 and Nasdaq 100 indices. SCHD’s total return since January stands at 21%, much higher than S&P 500’s 9.4% and Nasdaq 100’s 13.8%. This outperformance happened even though the fund has minimal stakes in the technology sector.
The ongoing outperformance has led to a surge in assets in the network. ETF Db data shows that its net inflows jumped by $14.7 billion this year. Its inflows have soared by over $31 billion in the last three years.
SCHD and other dividend funds are normally seen as being anti-artificial intelligence funds because they have minimal stakes in semiconductors and hyperscalers.
Instead, the fund holds many companies in traditional companies. Its biggest holdings are firms like Abbott Laboratories, UnitedHealth Group, Merck Group, Home Depot, Amgen, P&G, and Coca-Cola. Other top names in the fund are PepsiCo, Texas Instruments, and Verizon Communications.
Is SCHD a good investment?
SCHD is widely seen as a dividend ETF. Indeed, it tracks the Dow Jones US 100 Index, which measures the performance of high dividend-yielding stocks in the US. It specifically looks at companies that have grown their payouts for over 10 years.
However, in reality, the fund’s dividend payouts to investors is not all that good. It has a dividend yield of 3.2%, lower than many traditional assets. For example, the ten-year US Treasury bonds are paying a 4.60% return. Even shorter-term yields have remained above 4%.
Also, some other ETFs are paying a higher dividend than SCHD. For example, JEPI and JEPQ, which use a covered call strategy, are paying a 8.1% and 10.7%, respectively. The SPYI ETF has a dividend yield of 11.87%.
Still, JEPI has some benefits compared to these assets. For example, it is a better asset than short-term government bonds because of its capital appreciation. Also, it is a better asset than covered call ETFs because their gains are usually capped, especially in bull markets. For example, SPYI, JEPI, and JEPQ have had a total return of less than 10% this year.
SCHD ETF chart points to more gains
Technicals suggests that the SCHD ETF may be on the cusp of more gains in the near term. It has remained above the 25-day Exponential Moving Average (EMA).
The Relative Strength Index (RSI) has formed an ascending channel. It has already moved above the neutral line of 50.
Most importantly, the fund has formed a cup-and-handle pattern, a common bullish continuation sign. It is now in the handle section. Therefore, the most likely scenario is that the ETF continues rising in the coming months. If this happens, it may jump to as high as $50 as investors rotate from semiconductor names to value names.