Buy Schwab US Dividend Equity (SCHD) ETF only if this happens

The Schwab US Dividend Equity ETF (SCHD) stock price has done modestly well in the past few months. This rebound was driven by the stabilising financial sector and the general rebound in American equities. The stock jumped to a high of $74.67 on Thursday, ~9.13% above the lowest level in May.

Is it a good buy?

SCHD is one of the most popular dividend growth ETFs in Wall Street. It is so well-known that investors, especially retirees, have invested almost $50 billion in it. This makes it a bigger fund than other dividend ETFs like DVY, Spdr S&P Dividend ETF, and iShares Core High Dividend ETF.

SCHD is loved for three main reasons. First, it has a solid dividend yield than other similar funds. It has a dividend yield of 3.49%, which is quite reasonable. This yield, however, is slightly smaller than the risk-free rate of 4.12% that the market is offering these days.

Second, the SCHD ETF has a superior dividend growth than other similar funds. It has a 3-year CAGR rate of 12.3% and a five-year rate of 13.92%. Therefore, while the risk-free rate of 4.12% is a good one, SCHD has demonstrated its strong growth.

Third, SCHD is loved because of its close correlation with the SPDR S&P 500 ETF. For a long time, the two funds moved in the same direction. As a result, people saw it as a better alternative to SPY and other S&P 500 fund because of its superior dividend return. 

Another minor reason why investors love SCHD is that it has fewer companies than other similar funds. It tracks 101 companies while most of its peers track over 200. The benefit of this is that it balances concentration with diversification.

SCHD ETF stock price

In my last article on the Schwab US Dividend Equity ETF, I recommended focusing on other funds that offer smaller but faster growth. I still believe that popular funds like Invesco QQQ and SPDR S&P 500 funds are the best ways to invest. They have a smaller dividend yield but offer faster growth than SCHD and its peers.

Looking at the daily chart, we see that the SCHD fund has found a strong resistance level at $77.50. It has struggled to move above this price several times since January this year. It seems like the fund has formed a triple-top pattern whose neckline is at $64.

In price action analysis, this is one of the most accurate bearish signs. Therefore, from a technical standpoint, I suggest that you avoid the fund until it invalidates the triple-top pattern. This view will only be confirmed if it moves above the triple-top point at $77.50.