SCHD is a great dividend ETF: Buy these other funds too

The Schwab US Dividend Equity ETF (SCHD) is one of the most popular dividend funds in Wall Street with over $52 billion. This popularity is for a good reason as it has a long track record of beating its rivals.

SCHD has a dividend yield of 3.45%, which is higher than its comparable ETFs like iShares Core Dividend Growth (DGRO), SPDR S&P Dividend (SDY), and Vanguard High Dividend ETF (VYM). It also has a faster dividend growth rate than these funds.

The ETF has a five-year CAGR rate of 13.05%, which is higher than these other funds by far. As a result, $10,000 invested in the ETF in January 2018 would be over $18,295 today. Similarly, a similar amount invested in VYM would be worth over $15,880.

However, while the Schwab US Dividend Equity ETF is good, I believe that investors should combine it with other ETFs. Like other funds, it goes through challenges, which leads to weak results.

For example, the SCHD ETF has had a total return of 5.82% in the past 12 months. As shown below, it has underperformed other popular funds like SPY, QQQ, MOAT, and COWZ.

The main reason for this is how the fund is created. According to its website, the biggest constituents in the fund are industrials, financials, health care, IT, consumer staples, and energy.

In most periods, especially when inflation is falling, technology companies tend to outperform those in other industries.

Therefore, in this case, as I have written before, one of the best ways to invest in SCHD is to combine it with other ETFs to complement each other. In this case, it is safe to invest in other funds, especially that have technology stocks. SPY and QQQ are some of the best funds to pair with SCHD since they will provide growth as SCHD offers dividends. 

A major risk that the SCHD has is that financials, especially regional banks, play an important role in the fund. The biggest banks in the fund are US Bancorp, Fifth Third, Huntington Bancshares, Regions Financial, and Comerica.

The biggest challenge with regional banks is that they are the biggest holders of commercial real estate, which has become a toxic wasteland in a high-interest rate environment. Analysts believe that many of these companies will struggle as real estate valuations drop.

In addition to popular growth ETFs like SPY and QQQ, it also make sense to pair it with one of the several spot Bitcoin ETFs. The most popular of these funds are the iShares Bitcoin Trust (IBIT) of the Fidelity Wise Origin Bitcoin ETF (FBTC).

I believe that Bitcoin is a good ETF because of its strong track record in the past 15 years. It has moved from almost zero to over $52,000 as it outperformed key stock indices like the S&P 500 and Nasdaq 100.

Bitcoin also has more room to grow as demand continues rising because of Bitcoin ETF inflows and the upcoming halving.

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