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The Ultimate Guide to the Best Dividend ETFs: DGRO vs. SCHD



Previously, we took a closer look at the merits of dividend income funds versus annuities. We also introduced the Schwab US Dividend Equity ETF (SCHD), one of the best dividend income funds/ETFs.

 

What?

Dividend Growth ETF (DGRO) and Schwab U.S. Dividend Equity ETF (SCHD) are two of the top dividend-focused exchange-traded funds (ETFs) available to investors. Both aim to provide a steady income stream through dividends while offering potential for capital appreciation.

 

DGRO:

  • Issuer: iShares

  • Strategy: Focuses on companies that have consistently grown their dividends over time.

  • Holdings: Includes large-cap stocks with strong fundamentals and a history of dividend growth.

  • Expense Ratio: 0.08%

  • Total Assets: $27.2 B

  • Inception: 06/10/2014

  • Morningstar Rating: 4 Stars


SCHD:

  • Issuer: Charles Schwab

  • Strategy: Tracks the Dow Jones U.S. Dividend 100 Index, focusing on high dividend yield and quality.

  • Holdings: Concentrated on large-cap, high-dividend yield stocks.

  • Expense Ratio: 0.06%

  • Total Assets: $54.7 B

  • Inception: 10/20/2011

  • Morningstar Rating: 4 Stars

 

So What?

Performance and Strategy:

  • DGRO emphasizes dividend growth, making it a good choice for investors looking for companies with strong earnings growth potential and a history of increasing dividends. This strategy can lead to capital appreciation over time as companies grow their earnings and dividends.

  • SCHD, on the other hand, focuses on current dividend yield and quality, providing a higher immediate income stream. It includes companies with high dividend payouts and strong fundamentals, making it an attractive option for income-focused investors.

 

The chart below shows the 10-year performance comparison between the two. They are very close but  DGRO is slightly ahead of SCHD.



Yield and Growth:

  • DGRO offers a lower current yield compared to SCHD but has the potential for higher dividend growth over time, which can result in a growing income stream.

  • SCHD provides a higher initial yield, making it suitable for investors needing immediate income. Its focus on high-quality companies also offers potential for long-term growth.

 

The table below shows the dividend yield comparison between the two. SCHD shows higher dividend yields for every year than DGRO.



Now What?

Investor Recommendations:

  • Choose DGRO if: You are looking for long-term growth with a focus on companies that have a track record of increasing their dividends. This ETF is suitable for investors who can reinvest dividends and are seeking capital appreciation along with a growing income stream.

  • Choose SCHD if: You prefer a higher current yield and need immediate income. This ETF is ideal for income-focused investors who want exposure to high-quality, high-dividend-paying stocks with strong fundamentals.


Diversification and Portfolio Fit:

  • DGRO and SCHD can both be valuable additions to a diversified portfolio. Combining them could provide a balance between growth and income, leveraging the strengths of each strategy.

  • Consider your investment goals, risk tolerance, and income needs before deciding which ETF to prioritize. Both ETFs offer unique benefits that cater to different investor profiles.

 

Concluding Remarks

DGRO and SCHD are two of the best dividend ETFs available, each with its own strengths and suitable for different types of investors. DGRO's focus on dividend growth makes it ideal for long-term growth and capital appreciation, while SCHD's emphasis on high current yield caters to those needing immediate income. By understanding their differences and aligning them with your investment goals, you can make an informed decision that enhances your portfolio's performance and income potential.

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