SCHD vs. DGRO: Unveiling the Key Differences for Dividend Investors
Updated: May 20
Welcome to an exhilarating investment battle that will leave you on the edge of your seat! In this epic clash of financial heavyweights, we present to you DGRO, the formidable iShares Core Dividend Growth ETF from BlackRock, and SCHD, the mighty U.S. Dividend Equity ETF offered by Charles Schwab. Brace yourself as we delve into the thrilling world of dividends and uncover which ETF claims the throne!
Picture this: a savvy investor's dream. DGRO and SCHD, both renowned for their generous dividend payments, occupy a commanding 20% stake in my extraordinary portfolio as of Mid-August 2022. Now, embark on an eye-opening journey with us as we dissect these investment powerhouses, analyzing their every move to determine if a dual ownership strategy is the key to unlocking unparalleled success or if a singular champion reigns supreme.
In this electrifying article, we unveil the secrets behind DGRO and SCHD, revealing their unique attributes and captivating strategies. Prepare to witness a titanic clash of investment philosophies as we weigh the pros and cons of each ETF, leaving no stone unturned. Whether you're a seasoned investor or just stepping into the world of finance, this head-to-head battle will arm you with invaluable knowledge and insights that could shape your financial destiny.
Join us as we explore the exhilarating world of dividends, untangling the web of financial jargon and demystifying the complexities surrounding these investment titans. Through comprehensive analysis, statistical wizardry, and expert opinions, we will guide you towards making the most informed investment decisions of your life.
Are you ready to witness the ultimate face-off in the realm of finance? The stakes are high, the excitement is palpable, and the dividends are calling your name. Brace yourself for an unforgettable showdown between DGRO and SCHD, where one ETF will emerge victorious, captivating your portfolio and setting your financial future ablaze! Stay tuned as we unveil the secrets to wealth accumulation and the key to reigning supreme in the world of dividends. The battle of DGRO and SCHD is about to begin, and you don't want to miss a single second of this adrenaline-pumping adventure!
What's your favorite Dividend ETF?
- SCHD
- DGRO
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First let's take a look at the easy stuff:
SCHD Dividend Yield: 3.20%
DGRO Dividend Yield: 2.20%
SCHD Expense Ratio: .06%
DGRO Expense Ratio: .08%
Positions in SCHD: 104 Companies
Positions in DGRO: 414 Companies
Table of Contents
SCHD Overview
SCHD (Schwab U.S. Dividend Equity ETF) is an actively managed fund designed to mirror the performance of the Dow Jones Dividend 100 Index. To select stocks, SCHD applies a thorough screening process based on specific criteria:
Dividend Payment History: All stocks considered for inclusion must have a remarkable track record of sustaining dividend payments consecutively for at least 10 years.
Market Capitalization: Stocks are required to have a minimum float-adjusted market capitalization of $500 million USD.
Liquidity Criteria: The stocks must meet certain minimum liquidity requirements, ensuring sufficient trading activity.
Once those criteria are met the further screen the results:
Cash flow to total debt
Return on equity
Dividend yield
5-year dividend growth rate
SCHD Holdings
To maintain a balanced composition, SCHD imposes certain restrictions on individual holdings within the index. Specifically, no single holding is allowed to exceed 4% of the total index weight, while no sector can account for more than 25% of the weight.
Taking a closer look at SCHD's current top 10 holdings, we find a selection of prominent companies that includes Merck, Pepsi, IBM, Coca-Cola, Amgen, Pfizer, Cisco, and Texas Instruments. These top-tier holdings collectively represent approximately 38% of the total fund, reflecting the fund's diversified approach to capturing value across various sectors and industries.
DGRO Overview
DGRO (iShares Core Dividend Growth ETF) is an actively managed fund that strives to replicate the performance of the Morningstar US Dividend Growth Index. This index is designed to identify stocks that exhibit a consistent track record of dividend growth. In addition to this primary criterion, the stocks included in the index must meet the following requirements:
Qualified Dividends: To provide potential tax advantages, the selected stocks must pay qualified dividends.
Uninterrupted Dividend Growth: Stocks considered for inclusion must have a minimum of five consecutive years of uninterrupted dividend growth, reflecting their commitment to rewarding shareholders.
Payout Ratio: To ensure financial stability and sustainable dividend growth, the index applies a maximum payout ratio threshold of 75% to the stocks.
Interestingly, DGRO allows for a flexible allocation strategy within the fund. While the managers are required to invest at least 80% of the fund's assets in accordance with the aforementioned screening requirements, they have the flexibility to allocate the remaining 20% to various investment vehicles such as futures, options, or other income-generating instruments.
By adhering to a rigorous selection process and maintaining a balance between dividend growth stocks and additional investment strategies, DGRO aims to provide investors with a diversified portfolio that focuses on both income generation and potential capital appreciation.
DGRO Holdings
DGRO's top 10 holdings comprise a powerful lineup of industry-leading companies. Among these notable holdings are Apple, Microsoft, Proctor & Gamble, JP Morgan Chase, Johnson and Johnson, Home Depot, Pfizer, Merck, Coca-Cola, and Broadcom. These well-established stocks collectively represent approximately 24% of the total fund, reflecting the fund's emphasis on investing in high-quality companies with strong growth potential. With such a diversified selection of top holdings, DGRO aims to provide investors with exposure to industry leaders that can contribute to long-term portfolio growth and stability.
Fund Overlap
The information provided below, obtained through the insightful Fund Overlap tool on ETFRC.com, offers valuable insights for those seeking to compare multiple funds.
Remarkably, a significant 54% of SCHD's holdings are also present in DGRO. However, it's important to note that this overlap alone does not necessarily make DGRO the superior choice, as SCHD employs a robust screening methodology. Nevertheless, for those interested in exploring the common ground between these funds, here is a compilation of the Top 25 overlapping holdings found in both SCHD and DGRO.
Exploring the overlap between SCHD and DGRO holdings is crucial to assess the primary reasons for favoring one fund over the other. However, it's essential to delve deeper and consider additional factors before making a decision. One such factor is the unique holdings within each ETF, which can shed light on their distinctive strategies and objectives.
SCHD predominantly focuses on high-quality dividend blue-chip companies, emphasizing stability and consistent income. In contrast, DGRO places greater emphasis on companies with lower dividend yields but higher growth potential. To gain further insights, let's examine the top 10 unique holdings in each ETF, which will provide a clearer picture of the specific stocks that differentiate these two funds.
By examining the top 10 holdings of DGRO, it becomes evident that the fund encompasses influential market players such as Apple, Microsoft, Intel, and other prominent companies. This strategic selection is likely to contribute to greater potential for ETF stock price appreciation when compared to SCHD. However, it's important to note the tradeoff involved. While DGRO emphasizes growth, SCHD boasts a distinct advantage in terms of dividend yield, offering a full percentage point higher than DGRO. This signifies that SCHD may be more appealing to investors seeking higher dividend income.
Past Performance
Let's examine the historical performance of each fund using Portfolio Visualizer, an invaluable tool for conducting backtests. The following parameters were used in the analysis:
Date Range: 2014-2022 (limited by DGRO's inception date)
Initial Investment: $10,000
Monthly Contribution: $250
Dividend Reinvestment Program (DRIP): Enabled
By simulating these conditions, we can gain insights into the growth and returns generated by both funds over the specified period. This analysis will provide a comprehensive perspective on the performance dynamics and potential outcomes of investing in SCHD and DGRO.
Portfolio 1 is 100% SCHD
Portfolio 2 is 100% DGRO
Portfolio 3 is 100% VOO
Comparing the portfolio performance, both SCHD and VOO exhibit similar ending balances, with SCHD slightly edging out the competition by approximately half a percent in compound annual growth rate (CAGR). Moreover, SCHD demonstrates superior performance in its best worst year compared to VOO, surpassing it by half.
If you prefer not to reinvest dividends, as often seen during retirement, VOO emerges as the top-performing ETF. However, when focusing on dividend investing for retirement, SCHD emerges as the optimal choice. With the highest overall return, including dividends, it offers the potential for the highest passive income. For reference, the income values are provided below:
Passive Income
Experience the power of passive income with SCHD, as it outshines both DGRO and VOO by delivering a staggering 32% and 53% larger passive income, respectively. This remarkable increase in passive income makes SCHD an ideal choice for investors seeking reliable and substantial returns.
Imagine investing $1,000,000 in SCHD and reaping the rewards of its impressive current yield. You would enjoy the following annual dividends for all three:
SCHD: $32,000 annually or $2,660 per month
DGRO: $22,000 annually or $1,833 per month
VOO: $14,300 annually or $1,191 per month
Clearly, SCHD takes the lead in providing superior passive income potential, offering a substantial monthly cash flow to support your financial goals and aspirations. Embrace the rewarding benefits of SCHD and secure a prosperous future fueled by passive income.
Conclusion: The Superior Choice is SCHD
When it comes to selecting the perfect ETF, your individual investing goals and current portfolio play a crucial role. After careful analysis, I have personally decided to sell my holdings in VOO and DGRO and consolidate them into SCHD. This decision stems from the strikingly similar performance metrics among the three funds, with SCHD offering significantly greater passive income potential.
Ultimately, the choice between these ETFs often boils down to the specific holdings within each fund. In my case, since I already hold individual positions in Apple, Microsoft, and Home Depot, SCHD aligns seamlessly with my existing portfolio. However, if these stocks were not already part of my holdings, I would strongly consider a smaller position in DGRO to include these dividend growth stocks in my investment portfolio. Remember, selecting the right ETF depends on your unique circumstances and investment objectives. Conduct thorough research and consider your existing holdings to make an informed decision that aligns with your long-term financial goals.
Disclosure: I have long positions in SCHD, VOO, and DGRO.