Key insights
- The article compares SCHD and HDV dividend ETFs, noting SCHD's historical outperformance and higher risk. It highlights the different screening methodologies (Morningstar quality metrics for HDV, dividend growth and quality for SCHD). The article suggests that both ETFs offer sustainable yields due to their quality screens, but SCHD may be more suitable for investors seeking higher returns, while HDV may be more appropriate for risk-averse investors.
The Schwab U.S. Dividend Equity ETF (SCHD +0.45%) and the iShares Core High Dividend ETF (HDV +0.45%) are two of the most widely held high-income equity exchange-traded funds (ETFs) in the marketplace. They're especially attractive because they don't just own high-yield stocks. They own high-yield stocks backed by strong balance sheet fundamentals. That makes for a yield that's more sustainable and long-lasting over time.
Their portfolios are constructed in very different ways using different factors. Over time, that can have a big impact on both yields and total returns. Depending on your personal situation, one might be more suitable than the other.
The iShares Core High Dividend ETF tracks the Morningstar Dividend Yield Focus Index. It targets companies that score highly in two Morningstar quality metrics: distance to default and economic moat. This gives the portfolio an initial quality screen before targeting the 75 highest-yielding securities within that universe.
As is the case with any high-yield equity strategy, I prefer that it's done in conjunction with a dividend growth or quality screen. Selecting stocks based on yield alone can make a portfolio vulnerable to yield traps or potential cuts. Adding a growth or quality cross-check doesn't necessarily eliminate that possibility, but it reduces it by ensuring the yield is more sustainable.
The two Morningstar measures are a bit of a black box, but they do help amplify the durability aspect. The fund's yield of 3% is well above the S&P 500's and has proven durable over the years.
The Schwab U.S. Dividend Equity ETF follows the Dow Jones U.S. Dividend 100 Index. It looks for companies that meet yield, dividend growth, and dividend quality characteristics. The 100 highest-yielding qualifying components make the final portfolio, which is market-cap-weighted. Historically, SCHD has generated a meaningful performance advantage over HDV, but it also comes with more risk.
In my opinion, this fund does the best job of identifying the "best of the best" dividend stocks. It's able to pay out a very attractive 3.3%, while still ensuring it's backed by healthy balance sheets and a commitment to dividend growth.
SCHD and HDV both target high-yield stocks, but use different quality measures to determine which ones get selected. The two funds have a 44% overlap of assets. The top three sector holdings are the same -- Consumer Staples, Energy, and Healthcare. SCHD is heavier in industrials and communication services. HDV is heavier in utilities and energy. The 44% overlap of fund holdings suggests that they would be highly correlated with each on a daily basis as well. But that wasn't always the case.
Consumer staples (24%)Energy (22%)Healthcare (17%)
Consumer staples (19%)Healthcare (19%)Energy (17%)
For me, the Schwab ETF wins, but they're both competitive. It has a lower expense ratio, higher yield, and better long-term performance. But the real advantage to me is the stock selection strategy. It's one of the most robust and all-encompassing methodologies in the marketplace. It won't outperform in every market, as we saw from 2023 to 2025. But over time, this dividend investing strategy should shine.