THE Schwab US Dividend Stock ETF (SCHD +0.33%) is one of my favorite exchange-traded funds. It offers a high dividend yield and has generated strong overall returns. However, I think that First Trust Rising Dividend Achievers ETF (RDVY +0.76%) It’s even better if you’re looking for a higher average annual total return to grow your wealth faster. Over the past decade, RDVY has generated an average annual total return of 15.8%, surpassing SCHD’s 13.2%.
Here’s a look at the differences between these two dividend ETFs.
Image source: Getty Images.
SCHD: focused on high quality, high dividend stocks
THE Schwab US Dividend Stock ETF tracks the Dow Jones US Dividend 100 Index, which selects companies based on several dividend quality characteristics, including yield and five-year dividend growth rate. The ETF’s rolling 12-month dividend yield is 3%, triple the S&P500the level. At the same time, its holdings have increased their dividends at an average annual rate of more than 9% over the past five years.
Its holdings generally consist of slower-growing, higher-yielding companies. Its main sectors are healthcare (21%), consumer staples (20%) and energy (14%). Meanwhile, its top holdings include several well-known dividend stocks, including Coca-Cola, Procter & GambleAnd PepsiCoeach of which is a Dividend King with over 50 years of annual dividend increases. They offer higher returns: Coca-Cola currently yields 2.4%, while PepsiCo yields 4.6%. The dividend income generated by SCHD’s holdings contributes significantly to its total return.
Schwab US Dividend Stock ETF
Today’s change
(0.33%) $0.11
Current price
$33.21
Key Data Points
Main titles
QCOM
4.76%
TXN
4.42%
KO
4.16%
RDVY: focused on Nasdaq-listed dividend producers
The First Trust Rising Dividend Achievers ETF aims to generate investment results that are consistent with those of the Nasdaq US Rising Dividend Achievers Index. This dividend-focused index filters for Nasdaq-listed companies that have paid a dividend in the past 12 months, and that dividend is higher than it was during the same periods three and five years ago. It also selects companies with growing profits, a strong financial profile and a reasonable dividend payout ratio.
Since RDVY delisted its holdings from Nasdaq, its holdings tend to be more growth-oriented companies. The ETF’s main sectors are financial services (30%), technology (26%) and industrials (22%). Many of these faster-growing companies have lower dividend yields, so it’s no surprise that RDVY’s yield is rather low, at 0.8%, over the past 12 months. Some of its notable holdings are low-yielding tech giants Metaplatforms (0.3%) and Nvidia (0.4%).
First Trust Rising Dividend Achievers ETF
Today’s change
(0.76%) $0.60
Current price
$79.36
Key Data Points
Main titles
LRCX
2.48%
AMAT
2.48%
META
2.40%
Better for some, not for all
Data from Ned Davis Research and Hartford Funds show that Dividend Growth Stocks Have Historically Generated the Highest Total Returns. Both funds focus on these top performers, but from a different perspective. SCHD looks for growth stocks with high dividends, while RDVY looks for faster growing companies that pay increasing dividends. RDVY’s purer growth orientation makes it the best ETF for investors looking to grow their wealth faster, while SCHD is better for those looking for a higher current income stream.
Matt DiLallo holds positions in Coca-Cola, Meta Platforms, PepsiCo, and Schwab US Dividend Equity ETF and has the following options: long December 2028 $650 calls on Meta Platforms and short $660 calls December 2028 on Meta Platforms. The Motley Fool ranks and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Gn bussni
