SCHD

[Concasto]

Any thoughts on the ETF SCHD - Schwab U.S. Dividend Equity ETF? It seems to be a a model portfolio for DG Investors, but it provides instant diversity of ~100 stocks, and expense ratio of only .07%, and no commissions(if you have schwab account). There are also some quality requirements to be in the fund as seen below:

In order to be eligible for inclusion in the underlying index, stocks must have at least 10 consecutive years of dividend payments. The universe of stocks that meet that criteria are evaluated on four characteristics that are used to determine which are included in the index:

Cash flow to total debt
Return on equity
Dividend yield
Five-year dividend growth rate


Top 10 holdings are below.

VZ
JNJ
PFE
PG
MSFT
T
XOM
CVX
INTC
KO


I still have questions on capital gains and how they are treated because as I understand it ETFs are supposed to distribute all capital gains. Which if true, I don't understand how they know at what point you bought or sold the shares in relation to when the stocks in the fund were sold/adjusted. I have sent them an email on this topic.

[EricL]

I don't own any ETF's, but from what limited research I've done, SCHD would probably be at the top of my list.

There have been a few articles discussing it on Seeking Alpha, the one by David Van Knapp had quite a bit of discussion.

[Robandcindy2]

Might want to look at FDL too. Here is a side by side:

http://etfdb.com/tool/etf-comparison/FDL-SCHD/

Big difference in expense ratios.

I've often thought a good way to get started is to build a portfolio using the top 10 holdings from several ETFs you like. My choices were:

VYM
HDV
FDL

Add international with:

IDV
DWX

Rob

[Robert_NL]

Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

[Be Here Now]

(10-26-2014, 01:49 PM)Concasto Wrote: I still have questions on capital gains and how they are treated because as I understand it ETFs are supposed to distribute all capital gains. Which if true, I don't understand how they know at what point you bought or sold the shares in relation to when the stocks in the fund were sold/adjusted. I have sent them an email on this topic.

This article discusses ETF capital gains: http://seekingalpha.com/article/1907051-...ar-between

[Concasto]

(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.

[daat99]

(11-05-2014, 01:23 AM)Concasto Wrote:

(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.

That is not entirely accurate.
They will reduce their dividends if the weight of the companies change as well.

For simplicity lets think of an ETF that holds 2 fictional companies ABC and CBA.
company ABC pays 10% dividend and CBA pays 5% dividend.

If the ETF holds 50% ABC and 50% CBA than the ETF will deliver a 7.5% dividend.

If the ETF will change the composition and hold 75% CBA and 25% ABC than they'll need to reduce the dividend to 6.25% instead of the prior 7.5% dividend.

In this scenario even though both companies left their dividends alone the ETF holder will get less dividends.

You can't control how ETFs decide to buy/sell stocks so you can't count of smooth dividends even if none of the companies reduce the dividends.

It's true that this is just like owning the 2 companies yourself but from my perspective I'll have to figure out if the dividend I got means everything is OK or something is wrong by manually looking on each of the companies the ETF holds.


Personally I try to avoid dividend ETFs but I can certainly understand why someone would like to use them for instant diversification.

[Robert_NL]

(11-05-2014, 01:23 AM)Concasto Wrote:

(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.

Then tell me why SDY and VIG didn't increase their dividends every year, they hold a large basket of dividend growers as well.

(11-05-2014, 01:43 AM)daat99 Wrote:

(11-05-2014, 01:23 AM)Concasto Wrote:

(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.

That is not entirely accurate.
They will reduce their dividends if the weight of the companies change as well.

For simplicity lets think of an ETF that holds 2 fictional companies ABC and CBA.
company ABC pays 10% dividend and CBA pays 5% dividend.

If the ETF holds 50% ABC and 50% CBA than the ETF will deliver a 7.5% dividend.

If the ETF will change the composition and hold 75% CBA and 25% ABC than they'll need to reduce the dividend to 6.25% instead of the prior 7.5% dividend.

In this scenario even though both companies left their dividends alone the ETF holder will get less dividends.

You can't control how ETFs decide to buy/sell stocks so you can't count of smooth dividends even if none of the companies reduce the dividends.

It's true that this is just like owning the 2 companies yourself but from my perspective I'll have to figure out if the dividend I got means everything is OK or something is wrong by manually looking on each of the companies the ETF holds.


Personally I try to avoid dividend ETFs but I can certainly understand why someone would like to use them for instant diversification.

This is the exact reason indeed. Also explains why it almost always happens in march, because they rebalance at the start of the year. They cut their winners and buy more of the stocks that lost previous year. This can (and almost always) will get you a smaller dividend.

[Concasto]

(11-05-2014, 01:43 AM)daat99 Wrote:

(11-05-2014, 01:23 AM)Concasto Wrote:

(11-02-2014, 06:54 AM)Robert_NL Wrote: Keep in mind that ETF's don't necessarily increase their dividend every year. I guess SCHD will eventually cut it's dividend (as do all 'dividend growth' ETFs).

They will only cut their dividends if the stocks they hold do the same. No different than holding a basket of DGI stocks.

That is not entirely accurate.
They will reduce their dividends if the weight of the companies change as well.

For simplicity lets think of an ETF that holds 2 fictional companies ABC and CBA.
company ABC pays 10% dividend and CBA pays 5% dividend.

If the ETF holds 50% ABC and 50% CBA than the ETF will deliver a 7.5% dividend.

If the ETF will change the composition and hold 75% CBA and 25% ABC than they'll need to reduce the dividend to 6.25% instead of the prior 7.5% dividend.

In this scenario even though both companies left their dividends alone the ETF holder will get less dividends.

You can't control how ETFs decide to buy/sell stocks so you can't count of smooth dividends even if none of the companies reduce the dividends.

It's true that this is just like owning the 2 companies yourself but from my perspective I'll have to figure out if the dividend I got means everything is OK or something is wrong by manually looking on each of the companies the ETF holds.


Personally I try to avoid dividend ETFs but I can certainly understand why someone would like to use them for instant diversification.

Yes, thats true, but they would only replace stocks of worse quality for better, assuming their qualitative methods actually pick better stocks. The dividends COULD go up or down, but considering the top 10 stocks(which make up about half of the fund) in this fund are strong DGI candidates, I would say it would be rare if they were to reduce the dividends.

[daat99]

(11-09-2014, 12:26 AM)Concasto Wrote: Yes, thats true, but they would only replace stocks of worse quality for better, assuming their qualitative methods actually pick better stocks. The dividends COULD go up or down, but considering the top 10 stocks(which make up about half of the fund) in this fund are strong DGI candidates, I would say it would be rare if they were to reduce the dividends.

Robert explained it perfectly:

(11-07-2014, 02:32 PM)Robert_NL Wrote: This is the exact reason indeed. Also explains why it almost always happens in march, because they rebalance at the start of the year. They cut their winners and buy more of the stocks that lost previous year. This can (and almost always) will get you a smaller dividend.

Just like Robert explained when the funds re-balance their portfolios they need to get each holding back to the original weight.
This is why they sell the stocks that made more money (and usually - not always - payed more dividends) in order to buy stocks that made less money.