The Best Dividend ETF to Invest $1,000 In Right Now

If you’re looking for dividend stocks while the market is at all-time highs, this ETF offers a good mix of dividends and quality.

THE S&P 500 The index is near its all-time highs, pushing the index yield to just over 1.3% or so. You can get a yield more than twice that, at 3.4%, with Schwab US Dividend Stock ETF (SCHD 0.63%). But if you have $1,000 or more to invest right now, this ETF has a lot more to offer than just its yield.

You can get higher returns than the Schwab US Dividend Equity ETF

If all you care about is dividend yield, you can easily find exchange traded funds (ETFs) that have higher yields. For example, SPDR Portfolio S&P 500 High Dividend ETF (SPY 0.85%) gives a yield of 4.4%. In absolute terms, this is only one percentage point more, but in percentage terms, this is a huge increase in yield.

Image source: Getty Images.

But you can’t just look at dividend yields, especially when the market is near all-time highs. Specifically, the SPDR Portfolio S&P 500 High Dividend ETF essentially buys the 80 highest-yielding stocks in the world. the S&P 500 index.

While it’s true that the components of the S&P 500 are carefully selected to represent the economy as a whole when added to the index, the best-performing stocks often include companies facing tough times, such as Hasbro, which suffered a 9% year-over-year revenue decline in the first quarter of 2024 as it works to “transform” the business. That’s not to say Hasbro is a bad company, but it’s certainly not one that’s firing on all cylinders today.

The Schwab US Dividend Equity ETF does a different job of finding dividend stocks.

In particular, it does not focus on dividend yield over all other things. It starts the process by looking for companies that have increased their dividends for at least 10 consecutive years. (Real estate investment trusts, or REITs, are eliminated from the selection process.) Looking for consistent dividend increases helps narrow the pool of companies to those that have had a successful business history and the financial strength to consistently increase their dividends.

The Schwab US Dividend Equity ETF goes beyond dividends

But regular dividend increases are just the beginning for the Schwab US Dividend Equity ETF. Once it selects this pool of candidates, it creates a composite score that takes into account both yield and company quality.

Factors considered in the screen include cash flow versus total debt, which is essentially an attempt to focus on financially strong companies. return on equitywhich helps identify companies that are performing well financially. It ranks the five-year dividend growth rate, which is another way to highlight financial strength, but is specific to income-oriented investors. It then looks at dividend yield, which is clearly intended to highlight higher-yielding stocks and increase the ETF’s overall yield.

Once the Schwab US Dividend Equity ETF has this composite score, it ranks the scores from best to worst. The top 100 companies are selected for the ETF and weighted by market capitalizationIn this way, the largest and most attractive companies will have the greatest impact on the overall performance of the ETF.

The end result is an ETF that offers an attractive yield, supported by a roster of financially strong companies. This is a good thing to consider today due to the rapid progress of the stock market. The bull market often lead investors to buy stocks indiscriminately, allowing weaker companies to post large increases in their stock prices.

The Schwab US Dividend Equity ETF specifically attempts to weed out weak companies, placing investors in stocks that will likely be better able to handle a market and/or economic downturn.

Yield alone is not the end of the story

There’s nothing wrong with buying stocks based on their dividend yield. But yield alone isn’t the best way to find good quality businesses: you need to look at more factors.

And that’s exactly what the Schwab US Dividend Equity ETF offers investors. If you want a mix of yield and quality as Wall Street hits new highs, you’ll want to know that a bear market will eventually happen, so the Schwab US Dividend Equity ETF might be the best place for your money today.

Source