Dear SCHD ETF fanboys: Buy DGRO and VIG stocks too

The Schwab US Dividend Equity (SCHD) is one of the most popular dividend-focused ETFs among income and dividend funds. The fund is loved for its 11-year track record of dividend growth. It also has a 3.53% dividend yield, which is higher than other popular funds like the SPDR S&P 500 (SPY) and Invesco QQQ ETF.

As I have written before, Schwab US Dividend Equity is a great fund, made up of some of the biggest blue-chip companies in the US. The biggest companies in the fund are Amgen, Cisco, AbbVie, Broadcom, Home Depot, and Chevron. Other firms in the fund are Pepsico, Merck, and Coca-Cola.

All these are high-quality companies that have a long track record of growing their payouts to investors. Most importantly, unlike SPY, which is weighted towards the tech industry, SCHD is broader. Industrials, health care, financials, consumer staples, and information technology make up over 10% of the portfolio.

The biggest challenge for the Schwab US Dividend Equity is that it has no major growth companies. As such, the fund has missed some of the biggest themes in the market in the past few years. For example, like Warren Buffett, it missed key trends like electric vehicles (Tesla), streaming (Netflix), artificial intelligence (Nvidia), and cloud computing (Microsoft).

Another challenge is that it has not invested in some of the key companies that provide most returns. For example, it has no presence in energy partnerships like Enterprise Product Partners (EPD) and Energy Transfer (ET). Energy accounts for just 8% of the fund. Also, it has no investments in REITs.

SCHD vs. DGRO vs. VIG ETFs

I believe that SCHD investors should also consider diversifying their portfolios with quality growth ETFs. iShares Core Dividend Growth (DGRO) and Vanguard Dividend Appreciation Index Fund (VIG) are some of the best alternatives. 

The two are highly-liquid funds with over $23 billion and $66 billion, respectively. Also, they are cheap funds with an expense ratio of 0.06% and 0.08%, respectively.

The most important fact about these two funds is that, like SCHD, they have invested in quality companies that have a history of dividend growth. DGRO’s top companies are Microsoft, ExxonMobil, Johnson & Johnson, and Apple. 

VIG is more weighted towards tech companies, which account for 22% of the fund. Its biggest companies are Microsoft, Apple, Exxon, UnitedHealth, and Visa. Therefore, investing in SCHD, VIG, and DGRO will give your fund a balance of growth, value, and income. 

In addition to these funds, I also recommend allocating some funds to other covered call ETFs. Precisely, I love having both JPMorgan Equity Premium (JEPI) and JPMorgan Nasdaq Equity Premium Income (JEPQ).

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