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ETF Specialist

This Dividend Fund's Quality Screen Gives It a Leg Up

This exchange-traded fund offers profitable dividend-paying stocks with durable competitive advantages at a low fee.

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 Schwab U.S. Dividend Equity ETF (SCHD) offers a low-cost portfolio of profitable stocks with attractive dividend yields. This dual focus reduces the fund's exposure to firms with weak fundamentals that may not be able to sustain their dividend payments, which is a risk that can accompany a narrow focus on yield. The fund's sensible strategy and low fee should contribute to its edge over the long run, but its short live track record limits its Morningstar Analyst Rating to Silver.

This fund's index starts with the higher-yielding half of U.S. stocks that have paid dividends for the past 10 years. Next, it scores these stocks on four fundamental metrics: cash flow/debt, return on equity, indicated dividend yield, and five-year dividend growth. The 100 top-scoring stocks are included in the portfolio and weighted by their market capitalization.

Adam McCullough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.