For many investors seeking dividend income, the Schwab U.S. Dividend Equity ETF (SCHD) stands as a prominent choice, lauded for its appealing 3.3% yield and minimal 0.06% annual expense ratio. Nevertheless, the investment landscape offers an alternative that, while employing a comparable selection strategy, has historically outpaced SCHD's returns by a considerable margin over the last ten years: the First Trust Rising Dividend Achievers ETF (RDVY).
Both SCHD and RDVY integrate similar criteria into their investment methodologies, scrutinizing aspects like dividend growth potential, current yield, and the financial robustness of companies, including their cash-to-debt ratios, payout ratios, consistent earnings growth, and a history of increasing dividends. Yet, despite these shared foundational principles, the portfolios they ultimately construct diverge significantly.
The First Trust Rising Dividend Achievers ETF, for instance, exhibits a notable overweighting in the financial and technology sectors when compared to SCHD. Conversely, it allocates less to healthcare, energy, and consumer staples. This strategic allocation lends RDVY a more pronounced growth orientation and renders it more sensitive to economic fluctuations. These particular sector biases have proven instrumental in driving its superior performance over time.
Over the span of a decade, the First Trust Rising Dividend Achievers ETF has delivered an impressive average annual return of 15.96% (assuming dividend reinvestment). This figure significantly overshadows the 12.5% average annual return generated by the Schwab U.S. Dividend Equity ETF during the same period.
It is important to acknowledge that this enhanced performance from RDVY comes with certain trade-offs. Historically, RDVY has displayed approximately 20% greater volatility than SCHD. Furthermore, its current dividend yield is a modest 0.8%, which suggests that it may not be the primary choice for investors whose main objective is generating substantial income.
While SCHD undeniably remains a robust option for dividend-focused investing, the impressive track record of the First Trust Rising Dividend Achievers ETF cannot be overlooked. For those willing to accept a higher degree of market fluctuation and a lower immediate income stream in pursuit of potentially greater capital appreciation, RDVY presents itself as a compelling consideration within the realm of dividend-oriented exchange-traded funds.