SCHD vs SDY: A Comparative Analysis

If you’re looking for ways to invest in dividend-paying stocks, you may have come across Schwab U.S. Dividend Equity ETF (SCHD) and SPDR S&P Dividend ETF (SDY).

SCHD vs SDY: Both ETFs are popular choices among investors who seek to generate income from their investment portfolios. But which one is better for you?

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SCHD and SDY are both ETFs that track dividend-paying stocks. However, they have different investment profiles and performance metrics. SCHD seeks to track the performance of the Dow Jones U.S. Dividend 100 Index, which includes 100 high-quality U.S. stocks with a history of consistently paying dividends. SDY, on the other hand, tracks the S&P High Yield Dividend Aristocrats Index, which includes 112 U.S. stocks that have increased their dividends for at least 20 consecutive years.

When it comes to performance, SCHD has outperformed SDY in recent years, but past performance is not a guarantee of future results. It’s important to consider other factors such as expense ratios, holdings, and risk considerations before making an investment decision. In this article, we’ll take a closer look at SCHD and SDY to help you make an informed decision about which ETF is right for you.

Key Takeaways SCHD vs SDY

  • SCHD and SDY are both popular ETFs that track dividend-paying stocks, but they have different investment profiles and performance metrics.
  • SCHD seeks to track the performance of the Dow Jones U.S. Dividend 100 Index, while SDY tracks the S&P High Yield Dividend Aristocrats Index.
  • SCHD has outperformed SDY in recent years, but it’s important to consider other factors such as expense ratios, holdings, and risk considerations before making an investment decision.

Understanding SCHD vs SDY

When it comes to investing in dividend ETFs, two options that you may come across are the SPDR S&P Dividend ETF (SDY) and the Schwab U.S. Dividend Equity ETF (SCHD). Here’s what you need to know about these two ETFs.

Fund Objectives

Both SDY and SCHD aim to provide investors with exposure to U.S. dividend-paying stocks. However, there are some differences in their fund objectives.

SDY aims to track the S&P High Yield Dividend Aristocrats Index, which includes companies in the S&P Composite 1500 Index that have increased their dividends every year for at least 20 consecutive years. This index is designed to provide exposure to high-quality companies with a long history of dividend growth.

SCHD, on the other hand, aims to track the Dow Jones U.S. Dividend 100 Index, which includes 100 high dividend yielding U.S. companies that have paid dividends for at least 10 consecutive years. This index is designed to provide exposure to companies with a strong dividend track record and a focus on sustainability.

Index Tracked SCHD vs SDY

The indexes that SDY and SCHD track are also different, which can lead to differences in performance and holdings.

SDY tracks the S&P High Yield Dividend Aristocrats Index, which includes companies from the S&P Composite 1500 Index that have increased their dividends every year for at least 20 consecutive years. As of November 30, 2023, the top holdings of SDY include AT&T, AbbVie, and Exxon Mobil.

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which includes 100 high dividend yielding U.S. companies that have paid dividends for at least 10 consecutive years. As of November 30, 2023, the top holdings of SCHD include Procter & Gamble, Coca-Cola, and Johnson & Johnson.

Overall, both SDY and SCHD can provide exposure to U.S. dividend-paying stocks, but they have some differences in their fund objectives and the indexes they track. It’s important to consider your investment goals and do your own research before choosing between these two ETFs.

Performance Metrics SCHD vs SDY

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Historical Returns

When comparing SCHD and SDY, historical returns are an important metric to consider. According to ETF Database, SCHD has provided a 10-year annualized return of 13.24%, while SDY has provided a 10-year annualized return of 12.41%. Both ETFs have provided solid returns over the past decade, but SCHD has outperformed SDY.

Dividend Yield Comparison

Dividend yield is another important performance metric to consider when comparing SCHD and SDY. According to PortfoliosLab, SCHD has a current dividend yield of 3.65%, while SDY has a current dividend yield of 2.71%. SCHD has a higher dividend yield than SDY, which may be attractive to income-seeking investors.

Growth and Return

When considering future results, it is important to look at past performance. According to Seeking Alpha, both SCHD and SDY track indexes of high-quality dividend-paying stocks. However, SCHD has shown more flexibility in changing market conditions, which may lead to better performance in the future.

It is also important to consider volatility and risk-adjusted returns when comparing SCHD and SDY. According to ETF.com, SCHD has a higher Sharpe ratio and lower volatility than SDY. These metrics suggest that SCHD may provide better risk-adjusted returns than SDY.

In summary, when comparing SCHD and SDY, historical returns, dividend yield, and future performance are important metrics to consider. SCHD has provided higher historical returns and a higher dividend yield than SDY. Additionally, SCHD has shown more flexibility in changing market conditions and may provide better risk-adjusted returns than SDY.

Investment Profiles

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When it comes to investing in dividend-focused ETFs, two of the most popular options are SCHD and SDY. In this section, we will compare the investment profiles of these two ETFs and help you decide which one might be a better fit for your portfolio.

Expense Ratios

One of the most important factors to consider when choosing an ETF is its expense ratio. SCHD has a significantly lower expense ratio than SDY, making it a more cost-effective option for investors. As of December 2023, SCHD has an expense ratio of 0.06%, while SDY has an expense ratio of 0.35%.

Holdings Diversification

Another important factor to consider is the diversification of the ETF’s holdings. SCHD and SDY have different approaches to diversification. SCHD focuses on high-quality dividend-paying stocks, while SDY tracks the S&P High Yield Dividend Aristocrats Index, which includes companies that have consistently increased their dividends for at least 25 years.

SCHD’s holdings are spread across various sectors, with the highest allocations in Consumer Defensive, Healthcare, and Industrials. On the other hand, SDY’s holdings are primarily in Consumer Defensive, Industrials, and Utilities.

Dividend Aristocrats Presence

As mentioned earlier, SDY tracks the S&P High Yield Dividend Aristocrats Index, which includes companies that have consistently increased their dividends for at least 25 years. This means that SDY has a higher concentration of Dividend Aristocrats compared to SCHD. However, SCHD’s approach to selecting high-quality dividend-paying stocks has also resulted in a solid track record of dividend growth.

In terms of AUM, SDY has a larger asset base compared to SCHD. As of December 2023, SDY has an AUM of $21.4 billion, while SCHD has an AUM of $18.5 billion.

Overall, both SCHD and SDY are great options for investors looking for exposure to high-quality dividend stocks. However, if you are looking for a more cost-effective option with a diversified portfolio of high-quality dividend-paying stocks, SCHD might be a better fit. On the other hand, if you are looking for an ETF with a higher concentration of Dividend Aristocrats, SDY might be a better option for you.

Risk Considerations

When investing in ETFs, it is important to consider the risks involved. The following subsections detail some of the risks you should be aware of when considering SCHD vs. SDY.

Market Volatility

Both SCHD and SDY are exposed to market volatility, which can result in significant drawdowns. However, SCHD has historically exhibited lower volatility than SDY, which may make it a more attractive option for risk-averse investors. It is important to note, however, that past performance is not necessarily indicative of future results.

Interest Rate Impact

As with any investment, both SCHD and SDY are subject to interest rate risk. Changes in interest rates can impact the performance of both funds, particularly those with longer durations. SCHD has a lower average duration than SDY, which may make it less sensitive to interest rate changes.

Issuer Liability

Investors in both SCHD and SDY are exposed to issuer liability risk. This refers to the risk that the ETF issuer may not be able to fulfill its obligations, such as paying dividends or tracking the underlying index. However, both SCHD and SDY are issued by reputable companies (Schwab and State Street Global Advisors, respectively), which may mitigate this risk.

In summary, when considering SCHD vs. SDY, it is important to be aware of the risks involved. Both funds are subject to market volatility and interest rate risk, and investors in both are exposed to issuer liability risk. However, SCHD has historically exhibited lower volatility and has a lower average duration than SDY, which may make it a more attractive option for risk-averse investors.

Strategic Investment Insights

When it comes to investing in dividend ETFs, you need to consider multiple factors such as sector allocation, issuer, dividend income, and adapting to a rising rate environment. In this section, we will provide you with some strategic insights on how to invest in SCHD vs. SDY.

Adapting to a Rising Rate Environment

As interest rates rise, it is important to consider how your investments will be affected. One strategy to consider is investing in dividend ETFs that have a history of increasing dividends over time. This can help offset the impact of rising interest rates on your portfolio.

Both SCHD and SDY have a focus on dividend growth, with SCHD having a slightly higher dividend yield. However, it’s important to note that past performance is not indicative of future results. It’s important to do your own research and consider your own risk tolerance before making any investment decisions.

Sector Allocation Strategies

Another important factor to consider when investing in dividend ETFs is sector allocation. Both SCHD and SDY have a focus on dividend-paying stocks across various sectors, including energy, industrials, and technology.

SCHD has a slightly higher exposure to the energy sector, while SDY has a higher exposure to the technology sector. It’s important to consider your own investment goals and risk tolerance when deciding which ETF to invest in.

In summary, when it comes to investing in dividend ETFs such as SCHD vs. SDY, it’s important to consider factors such as adapting to a rising rate environment and sector allocation. Both ETFs have their own strengths and weaknesses, so it’s important to do your own research and consider your own investment goals and risk tolerance before making any investment decisions.

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