Dividend growth investing is a powerful strategy for building wealth, offering a blend of rising income and capital appreciation with lower volatility than non-dividend stocks. By focusing on companies that consistently increase dividends, investors benefit from compounding returns and inflation protection, ideal for long-term goals like retirement.
Exchange-traded funds (ETFs) are an optimal vehicle for this approach, providing instant diversification, low fees, and exposure to a curated basket of dividend-growing firms, reducing the risk of individual stock failures. Among dividend ETFs, the Schwab U.S. Dividend Equity ETF (SCHD) stands out as a top choice.
With a 3.9% yield, a low 0.06% expense ratio, and a focus on high-quality firms like Coca-Cola (KO) and Home Depot (HD), SCHD has delivered 12% annualized dividend growth since inception. Its rigorous selection criteria and strong performance make it a compelling option for dividend growth investors.
Quality Control
The Schwab U.S. Dividend Equity ETF stands out as one of the best investments dividend growth investors can make due to its robust construction, low costs, and strong performance.
SCHD tracks the Dow Jones U.S. Dividend 100 Index, selecting companies with at least 10 years of consecutive dividend increases, strong financial ratios, and high dividend yields. Its portfolio includes blue-chip stalwarts like Altria (MO), Cisco Systems (CSCO), and Lockheed-Martin (LMT), which provide stability and consistent payout growth.
With a 3.9% yield, SCHD offers attractive income, while its 12% annualized dividend growth over the past decade supports long-term compounding. The ETF’s 0.06% expense ratio, among the lowest in its category, ensures investors keep more of their returns compared to peers.
SCHD’s methodology emphasizes quality, targeting firms with high return on equity (averaging 25% for holdings) and low debt-to-equity ratios (0.5 on average), reducing risk during market downturns. Its sector allocation – 21% energy, 19% consumer staples, and 15% healthcare – balances defensive and growth-oriented exposure, mitigating volatility.
In 2025, SCHD is down 2.6%, but has rallied 11% from its April low, helped by its focus on undervalued, high-quality dividend payers.
However, risks do exist. SCHD’s has a higher concentration in its top holdings – nine of the top 10 stocks account for 4% of the total – introducing mild single-stock risk. Competitors like Vanguard Dividend Appreciation ETF (VIG), with broader diversification, may appeal to risk-averse investors, though they offer lower 1.8% yields.
Economic slowdowns could also slow dividend growth, but SCHD’s focus on financially sound firms mitigates this.
Looking forward, SCHD’s prospects remain strong. Its holdings’ projected 8% to 10% earnings growth supporting future dividend hikes. It hiked its payout 16% in March and recently split its stock 3-for-1. Its low valuation also provides a buffer against market volatility.
For investors seeking a balance of income, growth, and stability, SCHD’s proven track record, low fees, and quality focus make it a top choice for dividend growth investing, ideal for portfolios aiming for consistent returns over decades.
— Rich Duprey
Former Wall Street Insider Calls This His Biggest Gold Play Yet [sponsor]
Karim Rahemtulla, the trader behind a 400% gain in 24-months on Rolls-Royce, has uncovered another potential multi-bagger. This under-$20 stock gives you exposure to over 1-oz of gold with the lowest production costs in the industry. And an upcoming announcement could send this stock soaring. Get Karim's urgent briefin - click here now.
Source: Money Morning
