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Reuben Gregg Brewer, The Motley Fool
Sun, Mar 16, 2025, 7:38 AM 4 min read
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Everyone knows astir the S&P 500 Index (SNPINDEX: ^GSPC), which is astir apt the astir recognized marketplace gauge successful the world. But person you heard of the Dow Jones U.S. Dividend 100 Index? Probably not.
This is the scale that sits down the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) and its charismatic 3.5% dividend yield. Here's what that scale does and wherefore it makes this ETF truthful charismatic if you person little than $500 to put today.
The Dow Jones U.S. Dividend 100 Index is focused connected dividend stocks. But not conscionable immoderate dividend stocks. The archetypal happening this scale does arsenic it looks to physique a portfolio is propulsion retired immoderate banal that doesn't person astatine slightest 10 consecutive years of yearly dividend increases.
That focuses the portfolio connected companies that person proven they person a beardown business, since anemic businesses don't usually negociate a feat similar that. (The scale besides jettisons real property concern trusts (REITs) due to the fact that they would predominate the portfolio fixed that they are specifically structured to wage ample dividends.)
Some indexes would halt astatine that step, but not the Dow Jones U.S. Dividend 100 Index. It has different surface that limits the portfolio adjacent further. It creates a composite people that includes currency travel to full debt, instrumentality connected equity, dividend yield, and a company's five-year dividend maturation rate.
Each of these factors has a purpose. Cash travel to full indebtedness looks astatine fiscal strength. Return connected equity is simply a gauge of institution quality. Dividend output is beauteous intelligibly astir the income an capitalist tin expect to collect. And the five-year dividend maturation complaint is truly a operation of things, but astir importantly it helps to guarantee that investors are buying companies that volition reward them for sticking around.
The astir 100 companies with the highest composite scores get into the scale and are weighted by marketplace cap. The database of holdings is updated annually, truthful the champion candidates are ever successful the index. And investors get each of this enactment done for them for a tiny disbursal ratio of conscionable 0.06%.
The lone mode to put successful this scale is to bargain shares of the Schwab U.S. Dividend Equity ETF. The ETF's shares commercialized for astir $30 a share, truthful you tin bargain successful for a comparatively tiny sum. But what precisely are you getting, performance-wise? There's the astir 3.5% dividend output for starters, but that's conscionable the opening of the story.
Notice that the terms of Schwab U.S. Dividend Equity ETF has trended higher implicit time. That means investors person seen their portfolios summation successful value. To beryllium fair, the ETF's dividend absorption volition apt permission it lagging down the S&P 500 index's performance. But then, the S&P 500 scale is lone offering a 1.2% dividend yield. Most income investors astir apt wouldn't caput this trade-off.
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