In retirement, people want a stable source of passive income that can continue to thrive over time. One great source of passive income is dividends given by dividend-paying companies. Asset managers have created some excellent dividend exchange-traded funds (ETFs) to make buying the best dividend stocks easier. This article will compare DGRO vs. SCHD as two likely dividend ETFs to add to your portfolio.
DGRO and SCHD share several similar traits, and both are very popular, with tens of billions of dollars invested. But they have different ways of doing things. The main difference is the underlying indices for the iShares Core Dividend Growth ETF (DGRO), and Schwab US Dividend Equity ETF (SCHD) differ. Consequently, DGRO is more of a dividend growth ETF, while SCHD is more of a high-yield dividend ETF.
Let’s examine their overall profile, key similarities, and key differences to help determine which dividend ETF you prefer to add to your portfolio.
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Why Select a Dividend ETF?
As investors, it is a wise choice to invest in low-cost ETFs. It simplifies investing, gives investors more time to focus on other things, and helps their portfolios grow.
A dividend ETF allows you to capture many different dividend stocks as a part of one fund. That could mean owning Coke (KO), Pepsi (PEP), Johnson & Johnson (JNJ), Home Depot (HD), and other excellent dividend stocks, all part of your portfolio but purchased together as an ETF.
The great thing is that investing is simpler when comparing ETFs to stocks. You buy one fund, and you will not have to do as much research on individual dividend stocks. In addition, if one company performs poorly, you have many other companies to help reduce the impact and balance the fund.
DGRO is an iShares fund managed by BlackRock, the ETF giant. It tracks the Morningstar US Dividend Growth Index, composed of US equities with a history of consistent dividend growth. The companies in the index have seen an annual increase in their dividends over at least a five-year streak, meaning the stocks are at least on the Dividend Challengers list. The fund’s inception was in 2014.
A minimal expense ratio of 0.08% makes it a great asset to add to a portfolio. It costs $8 for every $10,000 under management. The 30-Day SEC yield is 2.69%. The ETF has a growing dividend by owning value and growth companies, and it closely represents ETFs that track the S&P 500.
The fund consists of 413 holdings making the ETF more diverse across industries. The fund comprises $21.6 billion in net assets under management (AUM) across ten sectors offering significant diversification. DGRO is the second largest and one of the best dividend growth ETFs.
It has a decent amount of money in the Financials and Healthcare sectors, which value investors often like. It also has a 19% allocation in Information Technology with companies such as Apple (AAPL) and Microsoft (MSFT), giving it a growth component as well.
The top 10 holdings of DGRO:
|JPM||JP Morgan & Chase||2.98%|
|JNJ||Johnson & Johnson||2.85%|
|PG||Proctor & Gamble||2.46%|
The top 10 holdings make up about 24.5% of the fund.
SCHD is a Schwab exchange-traded fund that aims to track the Dow Jones US Dividend 100 Index. It has a strategy of looking for value companies with a history of quality and sustainability in dividends. In addition, SCHD looks for a 10-year history of dividends showing that the companies are more stable and can continue to provide solid dividends for investors.
The fund was created in 2011 and has $36.5 billion in AUM with a 30-day SEC yield of 3.43%. SCHD has 103 total holdings, making the fund more concentrated and selective in the companies included.
SCHD is a market cap-weighted fund, and no company can have more than roughly 4% of the entire composition. This allows the fund not to get too heavily overrepresented by one company.
The portfolio has placed 21.1% in Information Technology and 20.0% in Financials. The other sectors are more evenly distributed across Consumer Staples, Industrials, and Healthcare. Management of the ETF comes at a low cost of 0.06% expense ratio, meaning it costs $6 for every $10,000 invested.
The top 10 holdings of SCHD:
|IBM||International Business Machines||4.06%|
The top 10 holdings make up about 40.6% of the fund.
As a low-cost ETF, SCHD comes in with an excellent yield, and a more concentrated portfolio gives an investor a potential core asset to add to help bring in more passive income.
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DGRO and SCHD are both great ETFs to add to your portfolio. Here are a few similarities to remember when adding one to your portfolio.
- Low-cost passively managed ETFs.
- The dividend yield is above 2%.
- Continues to grow a passive income over the long haul.
Though they have a few similarities, the differences between DGRO vs. SCHD will help you determine the right dividend ETF to add to your portfolio.
Determining which dividend ETF to go with, you must first see if the differences align with your strategy. Some apparent differences would be:
- The expense ratio of DGRO is 0.08%, and SCHD is 0.06%
- DGRO has 413 holdings. SCHD has 103 holdings
- DGRO has $21.6 billion in assets. SCHD has $36.5 billion in assets.
- DGRO has a yield of 2.69%, and SCHD has a yield of 3.43%.
These differences have already been pointed out. As you can see, the yield and assets under management have a clear winner in SCHD. In addition, the expense ratio is much lower for SCHD, which helps with cost savings. But the strategy, composition, and overall performance are better indicators of how the fund will do over the long haul.
|Name||iShares Core Dividend Growth ETF||Schwab US Dividend Equity ETF|
|Index||Morningstar US Dividend Growth Index||Dow Jones US Dividend 100 Index|
|Number of Stocks||413||103|
|30-Day SEC Yield||2.69%||3.43%|
Besides the top ten stocks, the overall portfolio composition differs between DGRO vs. SCHD. Both DGRO and SCHD emphasize similar sectors. Also, both are lightly weighted in Real Estate, Basic Materials, and Utilities.
DGRO has a dividend strategy of purchasing companies with over five years of dividend growth. As these companies consistently grow their dividends, you will see the value of holding them in your portfolio. The fund is investing in dividend growth stocks.
SCHD has a strategy to hold companies with a ten-year history of paying dividends. They seek high-quality companies that lead to a higher yield over a more extended period. The approach focuses on quality companies that have sustainable dividends.
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The performance of these two funds is the part that separates them. DGRO has a 5-year annualized total return of 9.02% and a cumulative total return of 121% since its inception in 2014.
SCHD has had an annualized total return of 10.77% over that same five-year period and DGRO and has a cumulative total return of 132% since its inception.
Comparing DGRO vs. SCHD, if you were to put $10,000 into either one of these ETFs, SCHD would have a price growth that is more than DGRO and a dividend yield that is much higher in the same period.
Considering the fund’s history, yield, expense ratio, and overall performance, it is hard not to choose SCHD. SCHD has one poor quality: a higher concentration in fewer stocks, meaning it’s less diversified, but that should not be a reason not to choose it. The ETF still owns more than 100 stocks. DGRO is a good dividend ETF for those looking to add companies with high dividend growth.
That said, picking either of these ETFs will be a win-win for you as the investor. The choice is yours.
Thanks for reading DGRO vs. SCHD: Which Dividend ETF Outshines?
You can also read VIG vs. VYM: Which is the Best Vanguard ETF by the same author.
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Steve Cummings is the founder of the personal finance blog The Frugal Expat. As a traveler and expat, he has learned a lot about how to save money, live frugally, and invest for the future. His mission is to help people in saving, investing, reaching financial independence, and traveling.