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SCHD: A Potential For Redemption in 2024? SCHD: A Potential For Redemption in 2024?

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Planning for the stock market’s trajectory in 2024 is paramount following the conclusion of 2023.

At the onset of 2023, economic pundits and investors brimmed with trepidation about the stock market’s course.

Many anticipated the economy’s plunge into recession in 2023, yet we witnessed robust growth in a handful of soaring sectors instead.

Let’s delve into the sector performance for 2023:

  • Information Technology +56%
  • Communication Services +54%
  • Consumer Discretionary +41%
  • Industrials +16%
  • Materials +10%
  • Financials +10%
  • Real Estate +8%
  • Health Care +0.3%
  • Consumer Staples -2%
  • Energy -5%
  • Utilities -10%

It’s evident that three sectors ended up in the red, with health care barely scraping through with a gain in 2023.

The year was primarily steered by Technology and Communication Services, with Nvidia (NVDA) and Meta Platforms (META) at the helms of both sectors.

A glance ahead reveals a varied outlook for 2024 forecasts from notable Wall Street firms.

Yardeni Research, Oppenheimer, and Fundstrat predict the S&P 500 to climb more than 10% in the new year, while JPMorgan takes a more bearish stance, expecting the S&P 500 to decline by over 10%.

Major firms envisage an overall ascent in the index, albeit in a manner distinct from 2023, hinting at a broader climb.

This highlights a diversified ETF that struggled in 2023 but is poised for a resurgence in 2024 if a broad rally indeed materializes. The spotlight falls on none other than the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD).

Can SCHD Find Redemption in 2024?

The Schwab US Dividend Equity ETF is cherished by dividend investors for various reasons, including growth potential, solid dividend yield, and strong dividend growth.

Today, we will delve into all these areas, commencing with growth potential.

However, growth was nowhere in sight in 2023, as the ETF barely managed a 0.53% gain that year.

SCHD boasts a diversified portfolio, implying that its performance is likely to mirror the broader market’s success.

Here’s a breakdown of the ETF’s sector allocation:

Notably, the top 5 largest sectors encompass Industrials, Financials, Health Care, Technology, and Consumer Defensive, collectively constituting nearly 75% of the fund.

The ETF avoids overly concentrating on any single sector, with a meager 12.6% exposure to the Technology sector and a 4.3% exposure to Communication Services.

Given that these were the top 2 performing sectors in 2023, SCHD’s underperformance in the same year is understandable.

This underlines the notion that SCHD is poised to benefit from a broader market surge in 2024, unlike the top-heavy performance witnessed in 2023.

Let’s take a peek at the fund’s top 10 positions:

Broadcom (AVGO) leads the pack, emerging as a star in 2024. The top 10 positions account for 40% of the fund, which comprises 104 different stocks.

Each of the top 10 positions’ performance throughout 2023 is as follows:

The S&P 500 delivered a gain of over 20% in 2023, with only one position, AVGO, within the top 10 for SCHD outperforming the broader index.

Half of the top 10 positions concluded the year in negative territory, signifying an overall lackluster performance. Without AVGO’s impressive performance, SCHD’s 2023 would have fared significantly worse.

The ETF will undergo a reconstitution in March 2024, prompting curiosity about the portfolio managers’ potential reshuffling of the fund’s top positions and sector weightings in the new year. It remains to be seen if they will increase their exposure to Technology or Communication Services.

Regarding dividends, SCHD stands out for owning numerous dividend growth stocks while also maintaining a high dividend yield that often exceeds that of many “high-yield” dividend ETFs.

Over the past 12 months, SCHD has paid an annual dividend of $2.66 per share, equating to a dividend yield of 3.5%.

Shareholders have witnessed the ETF escalate its dividend payout for 12 consecutive years and counting.

Over the past five years, SCHD has ramped up its dividend at an average annual rate of 13%.

Notably, the dividend yield surpasses high-yield ETFs such as VYM and HDV, while the dividend growth outpaces dividend growth ETFs like DGRO and VIG, just to name a few.

The recent months have showcased SCHD’s potential when broader rallies materialize, as has been the case lately to close the year. Should this continue into 2024, SCHD is poised to perform admirably.

Author’s note: Brad Thomas is a Wall Street writer, which means he’s not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.

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