The Schwab US Dividend Equity ETF (SCHD) has reached a record high, climbing 25% year-to-date and outperforming major indices like the S&P 500 and Nasdaq 100, despite its minimal exposure to the AI sector. However, a closer look at the data reveals that the iShares Core Dividend ETF (DIVB) may offer a more attractive proposition for income-focused investors.
SCHD ETF: A Dividend Powerhouse
SCHD tracks the Dow Jones US Dividend 100 Index, comprising 100 companies with a strong history of consistent dividend growth. With an expense ratio of just 0.06%, it is one of the most cost-effective dividend funds available. Its top holdings include Abbott Laboratories, Amgen, Merck, Coca-Cola, Home Depot, UnitedHealth, and Chevron, with healthcare and consumer staples accounting for roughly 40% of the portfolio. This defensive tilt has helped it deliver steady returns, but it also means limited participation in the technology-driven rally.
DIVB ETF: A Diversified Alternative
In contrast, DIVB tracks the Morningstar US Dividend and Buyback Index, which includes over 300 companies that not only pay dividends but also engage in share buybacks. Buybacks can boost earnings per share, providing an additional tailwind for stock prices. The fund has a significant 18.8% allocation to information technology, with other major sectors including financials, industrials, healthcare, consumer staples, and energy. Top holdings feature ADP, Accenture, IBM, JPMorgan, HP, Paychex, Cognizant, ExxonMobil, and Johnson & Johnson.
Performance Comparison: DIVB Takes the Lead
Historical data shows DIVB has outperformed SCHD on a total return basis. Over the past five years, DIVB's price return stood at 67.6%, more than double SCHD's return. Year-to-date, DIVB has risen 28% compared to SCHD's 25%. When factoring in dividends, DIVB's total return this year is 30%, versus SCHD's 27%. Over five years, DIVB's total return is 90%, significantly ahead of SCHD's 58% and even surpassing the S&P 500's 87% gain.
DIVB also offers a slightly lower expense ratio of 0.05%, making it marginally cheaper to hold. While its dividend yield of 2.8% is a touch below SCHD's 3%, the superior total return potential may compensate for the slight yield difference.
Why DIVB Could Be a Better Buy
For investors seeking a dividend-focused strategy with broader market participation, DIVB's blend of dividends and buybacks provides a more comprehensive approach. Its higher allocation to technology positions it to benefit from ongoing innovation, while still maintaining a diversified portfolio. As the market continues to evolve, funds that can adapt to changing dynamics—such as the rise of AI—may offer better long-term prospects.
It's important to note that past performance does not guarantee future results. However, DIVB's consistent outperformance and lower fees make it a compelling option for those looking to maximize total returns from dividend investing.
This article is for informational purposes only and does not constitute financial advice.
