With net assets of less than $100 billion and a yield of 3.3%, Schwab US Dividend Equity ETF (SCHD +0.49%) An extremely popular way to generate passive income is exchange-traded funds (ETFs). Funds are crushing S&P 500 index (^GSPC 0.79%) Year over year – up 18.1% compared to 10.7% for the index. But most of these gains came in the first six weeks of the year, as investors turned to value stock.
Over the past five months, the Schwab US Dividend Equity ETF is up just 3.4%, while the S&P 500 is up 10.9% – led by huge gains in megacaps. technology stock.
That’s why the Schwab US Dividend Equity ETF is on hold. Let’s determine whether this is a buying opportunity for patient investors.
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An ETF based on value-focused sectors
The Schwab US Dividend Equity ETF aims to provide investors with a steady stream of passive income by investing primarily in industry-leading, large-cap, dividend-paying value stocks.
Unlike the S&P 500, which is heavy on growth-focused sectors like technology and communications, its 55.1% Schwab US Dividend Equity ETF Investments have been made in consumer goods, health care and energy, while less than 20% has been invested in technology and communications. For context, consumer staples, health care and energy make up 16.5% of the S&P 500, while technology and communications make up 47.3%.
Growth-focused sectors had a slow start to the year as investors questioned record capital spending on artificial intelligence (AI). But while many of the largest tech stocks by market cap are in big declines from their all-time highs, semiconductor stocks are surging — especially memory-chip stock – S&P 500 has reached new highs. iShares Semiconductor ETFWho tracks the industryhas almost doubled year on year – up 93% compared to 29% for the tech sector. And the semiconductor industry alone now makes up about 43.5% of the tech sector.
in amount, semiconductor stocks Providing market-moving benefits to major indices. The Schwab US Dividend Equity ETF holds two semiconductor stocks: Texas Instruments (4% weight) and Qualcomm (3.1% weightage). But overall, investors should expect the ETF to lag the S&P 500 while growth-focused sectors are leading the market.
Schwab US Dividend Equity ETF
today’s change
(0.49%) $0.16
current price
$32.56
key data points
Om
$99B
dividend yield
3.22%
expense ratio
0.06%
Top Holdings
uhhh
4.48%
HD
4.36%
abt
4.28%
Generating Passive Income from a Portfolio of Stocks
While some investors focus exclusively on total returns – capital gains plus dividends – others are looking to supplement retirement income by targeting dividend-paying value stocks, many of which are less volatile than the S&P 500. The Schwab US Dividend Equity ETF is a good buy for investors who value passive income as a core element of the investment thesis. The fund’s quarterly dividend payout allows investors to book returns without selling shares.
Because it invests in a basket of stocks, an ETF is unlikely to move. On the contrary, covered-call etf like JPMorgan Equity Premium Income ETF (JEPI +0.00%) and this JPMorgan Nasdaq Equity Premium Income ETF (JEPQ 1.52%) Get your high yields by sell call On the underlying indices they track (S&P 500, and for the former). Nasdaq 100 for the latter).
Over the past decade, the Schwab US Dividend ETF has delivered a total return of 222%, compared with 319% for the S&P 500. Despite its high yield, capital gains have historically been the main driver of the Schwab ETF’s overall performance, rather than dividends. This dynamic is completely opposite to the income-focused covered-call ETF. And in the process, the Schwab US Dividend ETF has generally been less volatile than the S&P 500 — a good trade-off for investors focused solely on capital preservation rather than capital appreciation.
A high-yield ETF that can anchor a risk-averse portfolio
The Schwab US Dividend ETF checks all the boxes for a buy-and-hold high-yield dividend fund. No single stock’s stake in the ETF exceeds 4.5%, ensuring that it is well diversified. And with only a 0.06% expense ratio (just $6 for every $10,000 invested), higher fees don’t detract from returns.
The ETF’s current yield of 3.3% is more than three times the S&P 500’s 1% – because the modern S&P 500 resembles a growth index that is much less focused on dividend yield than before.
Add it all up, and the Schwab US Dividend ETF is a perfect fit for investors looking for Participate in the stock market while generating reliable passive incomeWithout limiting their upside potential through a covered-call ETF.
Charles Schwab is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Foelber There are positions in the JPMorgan Equity Premium Income ETF, the JPMorgan Nasdaq Equity Premium Income ETF and the Schwab US Dividend Equity ETF. The Motley Fool has positions in and recommends JPMorgan Chase, Qualcomm, Texas Instruments, and the iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Charles Schwab and recommends the following options: Short September 2026 $95 calls on Charles Schwab. The Motley Fool has one Disclosure Policy.