The Schwab U.S. Dividend Equity ETF Is Near Its All-Time High: Is It Still a Good Buy?
Key Points
The Schwab U.S. Dividend Equity ETF provides investors with access to quality dividend stocks and pays 3%, which is above average.
The fund is currently averaging a price-to-earnings multiple of less than 20, which remains below the S&P 500 average of 23.
The Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD) is a go-to option for dividend investors, and rightfully so. The exchange-traded fund (ETF) has a solid mix of around 100 dividend stocks that are vetted for safety and quality. That makes the ETF an ideal option for income investors who want a high yield, without much risk. Currently, it's yielding 3%, which is far higher than the S&P 500 average of 1.1%.
The ETF has been so popular this year that it's risen 22% thus far, hitting a new all-time high along the way. The inevitable question becomes: Has it gotten too expensive to buy? Let's take a look.
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The fund's valuation may still not be all that high
The Schwab fund has been rising in value this year, but it hasn't exactly been skyrocketing. And as earnings have been rising for companies, it's entirely justifiable for investments to also rise in value. As of the end of August, the fund was averaging a price-to-earnings multiple of less than 20, which is less than the S&P 500 average multiple of 23. Dividend stocks can trade at more modest multiples because their growth prospects are not typically as strong as those of other stocks.
While the ETF may seem like it's doing really well this year, over the past five years, it has still underperformed the S&P 500 significantly; its five-year gains are just 36% while the broad index has soared by close to 80%. Thus, the Schwab fund may have reached new highs, but so too has the S&P 500 this year, along with many other stocks. With the market being as hot as it's been, stocks as a whole have been doing well in recent years.
Why the Schwab fund can still be an excellent option for dividend investors
Hitting a new all-time high is by no means a bad thing for an investment. In fact, it's a sign that it's been doing well. While buying the Schwab fund while it's trading near or at its high can suggest limited upside from here on out, it still possesses tremendous value for investors who want safe, high-yielding dividend payments.
Massive gains aren't the norm from this ETF, and investors shouldn't expect them, either. This year, however, as investors have been looking for safer options to invest in and to reduce exposure to overvalued stocks, the Schwab fund has been a popular choice due to the value it offers. Not only is its dividend well above average, but its valuation still isn't all that high. It can thus still be an excellent buy right now.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.