There is no right or wrong way to invest. The stock market is an arena where everyone gets to play their own game.
Some companies are hyper-focused on growth initiatives. A part of the investment community gravitates toward these high-potential businesses.
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On the other end of the spectrum are more mature companies. These profitable enterprises, which are known to have stable operations, want to share their wealth routinely. So, they pay regular dividends to their investors.
Market participants who value steady income don’t need to pick individual stocks. There are many dividend exchange-traded funds (ETFs) to choose from. But I believe this is the smartest one to buy with $2,000 in April.
Dividend investors should take a closer look at the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It’s offered by Charles Schwab, a reputable financial services firm that has been around for over five decades. The ETF, which tracks the Dow Jones U.S. Dividend 100 Index, currently has almost $88 billion in assets under management, making it a top choice for income-seeking investors.
This investment product holds 104 different stocks. The criteria for what gets included is clear. At a minimum, companies must have 10 years of consistent dividend payments. Businesses that produce high free cash flow relative to debt and that have raised their dividends have a better chance at a bigger weighting.
The top three holdings are UnitedHealth Group, Texas Instruments, and Chevron. The top 10 positions account for almost 41% of the ETF.
The S&P 500 index currently pays a dividend yield of 1.1%. Investors in the Schwab U.S. Dividend Equity benefited from a trailing-12-month dividend yield of 3.44%, more than triple the benchmark’s payout.
The Schwab U.S. Dividend Equity ETF is definitely a great choice if steady income is important to your investment philosophy. However, exorbitant fees can eat away at these returns. With a low expense ratio of 0.06%, this ETF luckily doesn’t charge an arm and a leg. On a $2,000 allocation, this comes out to $1.20 in the first year. Investors keep more of their money over time.
Performance is another variable that gets a lot of attention. In the past decade, the Schwab U.S. Dividend Equity ETF’s price climbed 134% (as of April 23). It’s encouraging to see capital appreciation. After including dividends, though, the total return comes out to a much better 223%.
