Schwab Grabs Lowest Cost Dividend ETF Crown

October 31, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs)

Charles Schwab Corporation (SCHW) introduced the Schwab U.S. Dividend Equity ETF (SCHD) on 10/20/11.  With an expense ratio of just 0.17%, the new ETF becomes the lowest cost U.S. listed dividend fund.  Schwab’s online customers can also buy and sell it commission-free.

According to the underlying index fact sheet (pdf), the Dow Jones U.S. Dividend 100 Index came into existence only two months ago.  Investors should not confuse it with the “Select” dividend indexes from Dow Jones that enjoy longer histories.  Dow Jones backtested the index methodology from 12/3/1998 and supplied selected data from that test.

One hundred stocks are selected for the index using four fundamental characteristics: cash flow/total debt ratio, return on equity, dividend yield, and five-year dividend growth rate.  Stocks must also pass additional screens such as 10 consecutive years of dividend payments.  A modified market capitalization weighting caps stocks at 4.5% and sectors at 25% as of each quarterly rebalancing date.

Largest holdings include Intel (INTC) 4.8%, Exxon Mobil (XOM) 4.7%, International Business Machines (IBM) 4.7%, Chevron (CVX) 4.6%, Procter & Gamble (PG) 4.3%, and Johnson & Johnson (JNJ) 4.2%.  The sector breakdown has Consumer Staples at 22.5%, Industrials 18.3%, Energy 12.5%, Technology 12.4%, Health Care 12.4%, Consumer Discretionary 10.3%, Materials 4.2%, Utilities 2.8%, Financials 2.6%, and Telecommunications 0.8%.

The index yield of 3.18% as of 9/30/2011 puts the fund’s yield estimate at 3.01% with quarterly distributions.  Additional information is located in the overview, press release, fact sheet (pdf), and prospectus (PDF).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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