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It's common for new investors to want to hit home runs in their first at-bats. That situation is arguably amplified at a time when major equity indexes are regularly hitting record highs.
With glamorous, high-octane growth stocks leading the charge, some market participants may be losing sight of the value of the singles-and-doubles approach to dividend investing. Those investors shouldn't ignore history. Though the percentage trended lower over the past decade due to the prominence of low-yield and non-dividend tech darlings, dividends accounted for about a third of the S&P 500's total returns over the past century.
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Most investors don't think in 100-year increments, and that's understandable, but when it comes to dividend investing, history and long-term perspectives matter. And the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is a prime example of a dividend exchange-traded fund (ETF) with a compelling history for long-term investors.
Locked in a seemingly daily battle with the Vanguard Dividend Appreciation ETF for the title of the largest dividend ETF, the $108 billion Schwab fund has a nearly unmatched track record. Two weeks shy of its 15th birthday, this ETF, which tracks the Dow Jones U.S. Dividend 100 Index, has returned 532% since its launch.
Over the past 15 years, it's been hard to find dividend ETFs that have outpaced this Schwab juggernaut. When narrowing the timeline to 10 years, specifically the decade ending Sept. 30, just eight dividend ETFs beat this Schwab fund.
One advantage of many payout funds that topped the Schwab U.S. Dividend Equity ETF during that span was greater exposure to technology stocks. That sector accounts for just 9.2% of the Schwab fund's weight. Conversely, healthcare and consumer staples names combine for 41.1% of the fund's roster, underscoring its status as a large-cap value fund.
At a time when growth stocks are doing the heavy lifting for the market and grabbing most of the headlines, it may appear as though Schwab ETF's status as a value fund is a strike against it. It's not, because that label confirms this dividend ETF is useful to investors whose portfolios may be too heavily allocated to growth or technology stocks.
There are other perks with this Schwab ETF. While eight dividend ETFs beat it over the past decade, just one has a lower expense ratio than the 0.06%, or $6 on a $10,000 investment, charged by the Schwab product. And just one had a higher dividend yield. The Schwab ETF has a 30-day SEC yield of 3.4%, more than triple the S&P 500's yield.
That yield is a Goldilocks scenario. It's not high enough to imply the fund is home to many yield traps. In fact, many of its holdings have payout-increase streaks measured in decades. Nor is the ETF's dividend yield so low that the fund lacks income-generating chops.
All told, the Schwab U.S. Dividend Equity ETF has the dependability and quality traits risk-averse investors seek and the income growth characteristics needed for younger market participants to put the power of compounding to work in their favor over long holding periods.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.
The Best Dividend ETF to Buy and Hold, According to 15 Years of History was originally published by The Motley Fool
