Two popular dividend-focused ETFs are SPYD, the SPDR Portfolio S&P 500 High Dividend ETF, and SCHD, the Schwab U.S. Dividend Equity ETF. Let’s compare them.
First, note that I don’t chase dividends. But I recognize that many investors use dividends to supplement their current income, particularly in retirement. Others just irrationally prefer dividend-paying stocks. I even designed a dividend-focused portfolio for income investors. In any case, these two funds are very popular and take a pretty different approach. Here we’ll review these dividend ETFs and explore the differences between them.
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In a hurry? Here are the highlights:
- SPYD and SCHD are two popular dividend-oriented ETFs from SPDR and Schwab, respectively.
- SPYD launched in 2015 and SCHD launched in 2011.
- SPYD costs a tiny bit more at 7 bps, while SCHD costs 6 bps.
- Both are very popular and have significant AUM, but SCHD is more popular than SPYD.
- SPYD captures the highest-yielding stocks in the S&P 500.
- SCHD looks for high-quality companies with a sustainable dividend via profitability screens.
- SPYD overweights Energy, Utilities, and REITs and all but excludes Industrials, Technology, and Consumer Cyclical stocks.
- SCHD overweights Financials, Industrials, and Consumer Staples, excludes REITs entirely, and nearly excludes Utilities.
- Since SPYD’s inception in 2015, SCHD has massively outperformed it on both a general and risk-adjusted basis.
- SPYD delivers greater exposure to the Size and Value equity risk factors. Profitability and Investment exposures are roughly equal between the two funds.
- SPYD has a higher yield at 3.99%, compared to 3.43% for SCHD.
SPYD vs. SCHD – Methodology
SPYD launched in 2015. It is the SPDR Portfolio S&P 500 High Dividend ETF. As the name suggests, SPYD is comprised of a basket of high yield stocks from the S&P 500. Appropriately, SPYD tracks the S&P 500 High Dividend Index. This index simply takes the 80 highest-yielding stocks from the S&P 500 Index and equally weights them. Easy enough. This makes SPYD particularly attractive to yield chasers.
SCHD is the Schwab U.S. Dividend Equity ETF. It launched in 2011. The fund seeks to track the Dow Jones U.S. Dividend 100™ Index, which is comprised of 100 stocks with at least 10 consecutive years of dividend payments and a minimum market cap of $500 million. Stocks are then selected for the index by screening for yield, profitability and cash flow metrics, and projected dividend growth, excluding REITs. Individual companies are capped at 4% and sectors are capped at 25%.
SPYD and SCHD have an overlap of only about 24%. This is illustrated more clearly in the very different sector weightings below.
In terms of factor exposure, SPYD tilts smaller than SCHD and provides appreciable exposure across Value, Investment, and Profitability. SCHD provides similar loadings on Profitability Investment but a much smaller loading on Value and a negative loading on Size.
SPYD and SCHD both have significant assets, but SPYD is more expensive by 1 basis point at 0.07%, versus 0.06% for SCHD.
Yield chasers may appreciate SPYD’s higher yield by about half a percent. At the time of writing, SPYD has a dividend yield of 3.99%, compared to 3.43% for SCHD.
SPYD vs. SCHD – Sector Composition
Notice how SPYD is highly concentrated in just a handful of sectors that are notorious for high yields like REITs, Utilities, Energy, and Financials. SCHD is concentrated in other sectors like Industrials and Technology which are all but absent from SPYD. SCHD also excludes REITs entirely.
SPYD vs. SCHD – Performance Backtest
Here’s a performance backtest of SPYD and SCHD going back to SPYD’s inception in 2015 through 2021:
During that time, SPYD has severely lagged SCHD on both a general and risk-adjusted basis. Also notice the much larger max drawdown for SPYD from the March 2020 crash and its considerably greater volatility compared to SCHD.
SPYD vs. SCHD – Conclusion
If you’re solely focused on yield and/or prefer to massively overweight Utilities, REITs, and Energy relative to both SCHD and the broader market, SPYD may be of use. If instead you want to make sector bets on Financials and Industrials while maintaining the appreciable tech exposure similar to the market, go with SCHD.
In any case, in my opinion, neither of these funds is perfectly suitable as a core holding in a well-diversified portfolio. Moreover, if one wants to target the factor exposure that explains returns between diversified portfolios, you may be better off simply using funds that directly target those factors.
Conveniently, both SPYD and SCHD should be available at any major broker, including M1 Finance, which is the one I’m usually suggesting around here.
Do you own either of these dividend funds in your portfolio? Let me know in the comments.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
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