Is the Schwab U.S. Dividend Equity ETF a Buy Now?

Contrary to a communal belief, not each dividend exchange-traded funds (ETFs) are the same. Indeed, they tin beryllium remarkably different.

Take the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) arsenic an example. Over the people of the past 3 years it's produced little than fractional the nett gains achieved by seemingly akin funds similar the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) oregon iShares Core Dividend Growth ETF (NYSEMKT: DGRO) (when factoring successful dividends paid during this stretch).

Smart investors aren't jumping to misguided conclusions astir this underperformance, though. Rather, they're figuring retired if this underperformance is yet a buying opportunity. And that starts with figuring retired wherefore this show disparity exists successful the archetypal place.

Here's what you request to know.

So what makes the Vanguard Dividend Appreciation Fund and the iShares Core Dividend Growth ETF truthful antithetic from Schwab's U.S. Dividend Equity Fund oregon the comparable ProShares S&P 500 Dividend Aristocrats® ETF (NYSEMKT: NOBL) (The word Dividend Aristocrats® is simply a registered trademark of Standard & Poor's Financial Services, LLC.)?

It starts -- and besides beauteous overmuch ends -- with their underlying indexes. Whereas Vanguard's Dividend Appreciation ETF is meant to reflector the S&P U.S. Dividend Growers Index, the Schwab U.S. Dividend Equity ETF is built to bespeak the show of the Dow Jones U.S. Dividend 100™ Index. The former's main criteria for inclusion is simply a conscionable minimum of 10 years of consecutive dividend maturation (although it besides excludes the highest-yielding 25% of otherwise-eligible tickers), portion the second specifically seeks retired the banal market's highest-yielding names, with a penchant for companies with amended currency flow, higher instrumentality connected equity, and the fastest rates of dividend growth.

It inactive doesn't look similar a immense difference. By making the market's highest-yielding 25% of stocks ineligible for inclusion successful the S&P U.S. Dividend Growers Index, Standard & Poor's seems to weed retired immoderate of the fundamentally weaker stocks that Dow Jones weeds retired differently.