If I Could Only Buy 1 Dividend ETF With $1,000 Right Now, Here's Where I'd Invest
Key Points
The Schwab U.S. Dividend Equity ETF focuses on quality, dividend growth, and yield in its selection process.
Market leadership in U.S. equities has rotated multiple times over the past year.
That makes focusing on broad winning themes instead of individual winners more important.
If I could add shares of only one dividend ETF to my portfolio today, it would be the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). This fund, along with the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG), is the cornerstone of my dividend stock portfolio.
Right now, I prefer SCHD's "quality with yield" approach over VIG's pure dividend-growth strategy. Here's why.
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SCHD: Providing quality, durability, and high yield
The U.S. equity market has experienced multiple asset rotations and bouts of volatility over the past year.
In 2025, tech and artificial intelligence (AI) stocks were dominating. Moving into 2026, small-cap, value, and dividend stocks rotated into market leadership. In the second quarter, it was back to tech stocks. Today, tech is showing signs of fatigue, and defensive sectors are outperforming.
Trying to pick winners is largely a losing effort if the market is swinging around like this. Keeping your portfolio focused on broader themes and high-quality companies has proven more successful. This is where the Schwab U.S. Dividend Equity ETF excels.
Image source: The Motley Fool.
The Schwab ETF ultimately produces a fairly narrow portfolio of around 100 stocks that have passed numerous quality and dividend screens. Its selection process considers the cash flow-to-debt ratio, return on equity (ROE), dividend yield, and dividend growth rate to build its portfolio. The overall objective is to create a "best of the best" dividend stock ETF that focuses on quality companies with sustainable dividends.
With current inflation, rising interest rates, slowing growth, and geopolitical risks, it's time to take quality and durability a little more seriously. Look for the companies that can withstand all this and even prosper in more challenging economic environments. The days of bidding up the share prices of companies tangentially tied to the potential of the AI trade appear to be ending. Investors want tangible results.
Why SCHD's income component is so important
The Schwab U.S. Dividend Equity ETF's 3.3% yield isn't necessarily the highest you can find in the dividend ETF space, but it might be the most sustainable. The dividend growth screen ensures that the company has committed to the dividend. The quality screens ensure that the company can keep paying and growing the dividend in the future.
Since its 2011 inception, this fund has increased the annual dividend paid to shareholders every year for 14 straight years. The dividend has grown 7% per year over the past five years and 10% annually over the past decade. That's high-level income that has sustainably grown beyond inflation over time. When real income grows, shareholders come out ahead.
The risk, of course, is that the tech/AI trade continues and the more defensive nature of this portfolio lags. But most investors already have plenty of tech exposure in their portfolios, even through broadly diversified funds like the Vanguard S&P 500 ETF. Investors might benefit more from mitigating downside risk here than from trying to maximize growth even further.
The larger takeaway is that the Schwab U.S. Dividend Equity ETF remains one of the best ways to emphasize quality and yield in your portfolio. That dynamic usually remains in demand no matter what.
David Dierking has positions in Schwab U.S. Dividend Equity ETF and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.