HomeMost PopularSCHD Vs. VIG: 3 Reasons SCHD Is the Superior Dividend ETF to...

SCHD Vs. VIG: 3 Reasons SCHD Is the Superior Dividend ETF to Buy Right Now

Actionable Trade Ideas

always free

In a recent article, I discussed my family’s updated target portfolio plan for our $2.5 million family charity hedge fund. One significant change I made was replacing Vanguard Dividend Appreciation Index Fund ETF Shares (NYSEARCA: VIG) with Schwab U.S. Dividend Equity ETFβ„’ (NYSEARCA: SCHD) as the only core exchange-traded fund (ETF) in our portfolio. In this article, I will explain why SCHD is hands down the better buy right now.

Reason One: SCHD’s Strategy Outshines VIG

SCHD utilizes a strategy that goes beyond VIG’s approach to selecting dividend stocks. While both ETFs require companies to have 10+ years of dividend growth streak, SCHD incorporates additional quality screens to identify the best high-yield dividend growth blue-chips in America. This strategy considers factors such as free cash flow to debt, return on equity, projected yield, and dividend growth rate. By applying rigorous screens for quality, safety, and value, SCHD offers a more comprehensive and effective investment approach.

On the other hand, VIG mainly focuses on dividend growth streaks and eliminates the highest yielding names from its holdings. While this strategy is sound and aligns with the principles of legendary investor Ben Graham, SCHD’s approach combines the reliability of dividend growth streaks with additional metrics for selecting superior dividend stocks.

Reason Two: Historical and Future Returns Favor SCHD

When comparing the historical performance of SCHD and VIG, SCHD has consistently outperformed VIG in terms of total returns. Over the past 12 years, SCHD has delivered superior returns, with a 90% likelihood that these returns are driven by fundamentals rather than luck.

Analysts expect SCHD to continue outperforming VIG by approximately 2.5% per year in the long term, although the historical difference has been closer to 1.3%. While a 1-2% difference might not seem significant in the short term, it can have a substantial impact on long-term returns. Even a 1% higher return can result in 35% higher inflation-adjusted money over a 30-year period, while a 2% higher return can yield 81% more real money. With SCHD expected to generate significantly more real money over time, it presents a more attractive investment opportunity.

Reason Three: SCHD Offers Better Dividend Income Generation

With SCHD offering almost twice the yield of VIG and slightly faster long-term growth, it becomes a superior income generator. Over time, this advantage in income generation can have a substantial impact on overall returns. For example, after just ten years, SCHD delivers nearly 2X the inflation-adjusted income compared to VIG. Analysts also anticipate similar dividend growth rates for both ETFs in the future, with SCHD projected to deliver 4-6% better income growth. Over a 30-year time frame, this could translate into a staggering 332% better inflation-adjusted income.

Considerations and Conclusion

While SCHD offers several advantages over VIG, it may not be the right choice for everyone. VIG boasts a highly diversified portfolio, owning a broad range of dependable dividend stocks, including aristocrats and future aristocrats. Furthermore, VIG has lower tax expenses and a more extensive portfolio, which can provide greater security and reduce volatility.

However, considering SCHD’s robust strategy, consistently superior historical performance, and better income generation potential, it stands as a compelling investment opportunity. With its current undervalued valuation, SCHD offers a significant upside for long-term income growth investors.

Ultimately, both VIG and SCHD are excellent dividend ETFs, but SCHD emerges as the superior choice for investors seeking a reliable and high-performing dividend ETF at the present moment.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.