The Schwab U.S. Dividend ETF (NYSEARCA:SCHD) and the Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV) are two popular ETFs from renowned asset management giant Charles Schwab (NYSE:SCHW). I’m bullish on SCHD and view it as the clear winner here because of its superior performance over the long term, higher dividend yield, and the more attractive valuations of its holdings despite SCHV’s focus on value stocks.
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These two ETFs feature rock-bottom expense ratios, saving investors considerable money in fees, and both feature portfolios full of widely recognized blue-chip stocks. And with their respective focuses on dividends and value, they both appeal to conservative long-term investors. SCHD boasts $54.5 billion in assets under management (AUM), while SCHV is smaller, though still a major ETF, with $10.7 billion in AUM.
While there is, therefore, a degree of overlap between the two funds, delving into the details shows that SCHD is significantly stronger in several key areas, making it the decisively better choice for investors, in my view. Let’s dive right in.
What Are SCHD and SCHV’s Strategies?
Launched in 2011, SCHD tracks the total return of the Dow Jones U.S. Dividend 100 Index, an index “focused on the quality and sustainability of dividends,” according to Schwab.
Meanwhile, SCHV debuted in 2009, and it tracks the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. It gives investors “simple access to large-cap U.S. equities that exhibit value style characteristics.”
Sizing Up Their Portfolios
SCHD holds 100 stocks, and its top 10 holdings account for a reasonable 41.5% of the fund. Below, you’ll find an overview of SCHD’s top 10 holdings using TipRanks’ holdings tool.
Meanwhile, SCHV holds a much more diversified portfolio of 502 stocks, and its top 10 holdings make up just 18.6% of assets, making it less concentrated than SCHD. You can check out an overview of SCHV’s top 10 holdings below.
While there isn’t a ton of overlap between the two funds’ respective top 10 holdings (Chevron (NYSE:CVX)) is the only top 10 holding they have in common), they feature similar flavors in that both heavily feature widely-recognized large-cap U.S. stocks that pay dividends (with the exception of SCHV’s top holding, Berkshire Hathaway (NYSE:BRK.B)).
Interestingly, both portfolios receive similar favorable ratings from TipRanks’ Smart Score system. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. The top 10 holdings for both SCHD and SCHV feature seven stocks with Outperform-equivalent Smart Scores of 8 or higher.
The two funds feature Neutral-equivalent ETF Smart Scores of 7 out of 10, so they are on equal footing here.
Long-Term Performance Comparison
As of April 30, SCHD has generated impressive double-digit annualized returns of 11.1% on a five-year basis and 10.9% on a 10-year basis.
Meanwhile, as of the same date, SCHV has generated solid but lower annualized returns of 8.0% on a five-year basis and 8.6% on a 10-year basis. Therefore, SCHD is the hands-down winner when it comes to long-term performance.
Dividend Yield: The Winner Is Who You Would Expect
As you might expect, given the respective strategies of the funds, SCHD features a more attractive dividend yield than its peer. SCHD currently yields 3.4%, higher than SCHV, which yields 2.3%.
Valuation: The Winner Is a Surprise
As of the end of the most recent month, SCHV’s average price-to-earnings ratio was 19.1, while SCHD’s average price-to-earnings ratio was a more attractive 15.9.
Given SCHV’s focus on value, it’s a bit surprising that its average P/E ratio isn’t that much lower than that of the broader S&P 500 (SPX) — currently trading at 23.3 times earnings — and is higher than SCHD’s.
And SCHD isn’t cheaper solely on a price-to-earnings basis. SCHV’s holdings trade at a price-to-free-cash-flow multiple of 11.6, while SCHD features a lower price-to-free-cash-flow multiple of 9.5.
Dividend stocks are often more mature companies that sometimes feature lower, more stable valuations, so perhaps this isn’t as surprising as it seems at first glance. Still, it gives SCHD the edge in a category where one would expect the value-focused SCHV to have the advantage.
Two Cost-Effective Choices
Schwab is known for its inexpensive fees, and these two ETFs are exemplars of that. SCHV features a rock-bottom expense ratio of just 0.04%, while SCHD features a slightly higher expense ratio of 0.06%. This means that an investor putting $10,000 into SCHV will pay just $4 in fees annually, and an investor in SCHD will pay just $6.
While SCHV has a slight edge here, the difference is fairly negligible. Over the course of 10 years, assuming each ETF maintains its current expense ratio and returns 5% per year, the aforementioned SCHV investor would pay $51 in fees, while the SCHD investor would pay $77. Ultimately, both of these ETFs feature some of the cheapest fees around, making them cost-effective options for investors.
The Emphatic Winner
Both of these popular funds from Charles Schwab feature attractive expense ratios and strong, highly-rated portfolios of blue-chip stocks, although SCHV offers more diversification than SCHD.
However, SCHD has a clear edge over SCHV in three key areas — long term performance, dividend yield, and valuation — making it the hands-down winner in this comparison.
SCHD has put up a stronger performance than SCHV over the past five and 10 years. It features a more attractive dividend yield of 3.4% to SCHV’s 2.3%. Plus, its holdings trade at a significantly cheaper valuation than those of SCHV, despite the fact that value is supposedly SCHV’s bread and butter.
Given these factors, I view SCHD as the superior choice for both value and income investors. I’m bullish on SCHD overall based on its strong portfolio of blue-chip stocks with strong Smart Scores, low fees, relatively strong long-term performance, attractive dividend yield, and modest valuation.
