Retire with dividends: The case for SCHD, DGRO, and DGRW ETFs

The Schwab US Dividend Equity (SCHD), iShares Core Dividend Growth (DGRO), and the WisdomTree US Quality Dividend Growth Fund (DGRW) ETFs are some of the best funds to invest in for dividend-focused investors. 

While these funds don’t have the highest yield, they have a proven record of doing modestly well over the years. The SCHD yields 3.39% and has had a five-year compounded annual growth rate (CAGR) of 12.8% while DGRO has grown by 9.30% and the DGRW has grown by 2.94%.

Additionally, as shown below, the three funds have done well in the past five years. SCHD’s total return has been 83% while DGRO and DGRW have risen by 78% and 98%. The SPDR S&P 500 ETF (SPY) has risen by 102% in this period because of its more weighting towards technology stocks. 

Schwab US Dividend Equity ETF (SCHD)

The Schwab US Dividend Equity ETF is a popular fund with over $60 billion in assets under management. It tracks the Dow Jones US Dividend 100 Index, which is made up of companies with a good track record of paying dividends. In addition to dividends, the fund also looks at companies that have a better relative strength compared to their peers. 

Dow Jones looks at four key factors when adding companies in the fund. It looks at free cash flow to total debt, return on equity, indicated annual dividend, and the five-year dividend score. 

The SCHD ETF has 100 companies spread across key sectors of the US economy. Most of the firms are in the financial industry and they include popular names like Blackrock, US Bancorp, Fifth Third, and T Rowe Price. 

The other big category is health care, which is widely seen as an all-weather industry. Some of the top notable healthcare names in SCHD are Bristol Myers Squibb, Amgen, Abbvie, and Pfizer. 

SCHD also owns stakes in companies like Fastenal, Ford, EOG Resources, and UPS. Notably, it has a relatively small exposure to the technology sector. It also has no exposure to Real Estate Investment Trusts (REITs), Business Development Companies (BDCs), and Master Limited Partnerships (MLPs).

The SCHD ETF has done well since its inception. Its worst month was in 2018 when it dropped by 5.56% and 2022 when it fell by 3.23%. In the two years, the S&P 500 and Nasdaq 100 indices fell by 4.56% and 18.17%, respectively.

iShares Core Dividend Growth ETF | DGRO

The iShares Core Dividend Growth ETF is another popular low-cost fund to consider. It tracks the Morningstar US Dividend Growth Index, which looks at companies with a long track record of growing their dividends.

This index looks at several factors. For example, a company must have positive consensus forecasts and its payout ratio must be below 75%. Additionally, firms must have a record of growing their dividends for at least five years.

Using these metrics, the fund holds 417 companies, most of which are in the S&P 500 index. The key difference is the overall composition. Its top composition are financials followed by companies in the healthcare, technology, industrials, and consumer staples.

Some of the biggest constituents are firms like JPMorgan, Johnson & Johnson, Abbvie, and ExxonMobil. Like SCHD, it does not invest in REITs, which are known for having superior dividend yields. 

DGRO has had a good performance since its inception. It has had negative returns in three of the last nine years. Its worst year was in 2022 when it dropped by 7.90% and 2018 when it retreated by 2.35%.

WisdomTree US Quality Dividend Growth Fund | DGRW

The other top dividend ETF to consider is the WisdomTree US Quality Dividend Growth Fund, which tracks the WisdomTree US Quality Dividend Growth Index. This index is made of over 300 companies that have a record of paying and growing dividends. It has a price-to-earnings ratio of 24 and an average price to book multiple of 6.6.

Unlike the other two, the DGRW ETF has a huge weighting in technology stocks, which explains why it has a higher P/E multiple. Tech stocks account for 27.8% of the fund followed by healthcare, industrials, financials, and consumer staples. 

The top companies in the fund are the likes of Microsoft, Apple, AbbVie, Broadcom, Johnson & Johnson, and Procter & Gamble. The top ten companies have a weighting of about 37%, making it a bit riskier than SCHD and DGRO. Another drawback is that it is relatively expensive than its peers with an expense ratio of 0.28%. 

The DGRW ETF has also had three years of negative returns in the past decade. Its worst years were in 2022 and 2018 when it dropped by 6.34% and 5.36%, respectively.

To be clear: most analysts believe that the best way to compound returns is to use benchmark ETFs like those tracking the Nasdaq 100 and S&P 500 indices. Over the years, it has been clear that beating these indices is extremely difficult. Still, investing in DGRW, DGRO, and SCHD seems like a good way to supplement the benchmark indices.