After Analyzing Over 140 Dividend Paying ETFs, Here's Why I Bought This One

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My Dividend Growth Portfolio (DGP) is a real-time, real-money demonstration of dividend-growth investing. The portfolio is now in its 14th year.

For more than 13 years, the only investments the DGP ever contained were stocks.

Until now. On Tuesday, July 13, I purchased the first ETF for the DGP. This purchase is my dividend reinvestment for July 2021.

I wrote an article about dividend-oriented ETFs back in April, and a few days later, I posted a video on YouTube about them. That has turned out to be my most-viewed video so far, so if you want to learn more about dividend ETFs in general, please go watch it.

An ETF is a fund of companies rather than an individual company, kind of like a ready-made portfolio. I believe that you can follow a reasonable dividend-growth strategy via ETFs. Certainly, an ETF can comprise part of a dividend-growth portfolio. That’s the role it will play for me now.

From my research, about 140 ETFs involve a dividend-centric strategy in one way or another. But you need to be careful in picking the right ones, just as you must be with stocks, to align with your goals. Not all dividend ETFs, for example, emphasize dividend growth.

For my purposes, I identified one ETF that I think stands a little above the others. My “winner,” and thus the first ETF I have ever placed in my DG portfolio, is the Schwab U.S. Dividend Equity ETF (SCHD).

Here are the things I like about SCHD.

It has never cut its dividend on an annual basis. Like all ETFs, its quarterly payments vary, but when you add them up to get full-year totals, each year has always been an increase over the prior year.

It has a 10-year streak of raising its total dividend payout every year. I know of no ETF that has a longer streak. If SCHD were a stock, it would qualify as a Dividend Contender and a Dividend Achiever.

It has a decent yield of 2.9%. That’s a backward-looking yield; ETF yields can’t be projected forward because of the variable quarterly payments. So SCHD’s “true” forward yield is probably a little higher.

It sports a fast dividend growth rate of 12% per year over the past five complete calendar years (ending in 2020). Over its most recent full year (2020), it raised its payout by 18%.

The ETF is designed to measure the performance of high-dividend-yielding stocks in the USA with a record of consistently paying and raising their dividends. That basic focus lines up well with my own goals for the DGP.

It has one of the lowest expense ratios in the industry, at 0.06%.

Honestly, there’s really nothing that I don’t like about SCHD.

SCHD holds 100 stocks, which are rebalanced quarterly and reconstituted annually. Its top-10 holdings make up 41% of its assets, and they read like a wish-list of quality, high-performing dividend-growth stocks.

When I started this portfolio in 2008, I had no thoughts of including ETFs. For one thing, “dividend” ETFs barely existed then.

But times change, and ETFs are now a major force in the market. I have been toying with the idea of adding an ETF to this portfolio for several years, and I changed the portfolio’s business plan to allow them a couple of years ago.

SCHD is not the highest-yielding ETF out there, but its combination of quality, unbroken dividend growth streak, and consistent performance across many market conditions in the past 10 years makes it very attractive. I would say (given the difficulties of valuing ETFs) that considering it OK-valued when its trailing 12-month yield is 2.8% or better is a handy short-cut way to deciding whether it is good to purchase at any particular time.

That is the case now, so that’s why I devoted this month’s dividend reinvestment to adding SCHD as the first ETF to my Dividend Growth Portfolio.

This is not a recommendation to buy, hold, sell, trim, or add to SCHD. Any investment requires your own due diligence. Always be sure to match your stock and fund picks to your personal financial goals.

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