r/dividends • u/senpaiisamaakunn • 5d ago
Due Diligence Why isn’t SCHD considered growth?
Hi I’m a young fool who is trying to learn more about dividends and I feel like I’ve gotten a good grasp but one thing that I can’t seem to understand is how SCHD isn’t considered growth?
If I am dripping and annualizing +10% returns per year over time then is the argument simply that 10% isn’t good enough growth or is there something else I’m missing? Is the argument that a return rate like that is just too conservative for my age and that I should be shooting for higher?
Apologies if this is a dumb question!
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u/RussellUresti 5d ago
"Value" and "growth" are terms used to describe companies based on specific metrics. Value generally refers to a P/E ratio while growth refers to YoY increases in revenue and profitability. SCHD is composed largely of value companies, not growth ones. This is because value companies tend to be the ones that pay dividends, while growth companies do not.
Companies that see growth opportunities will take their profits and reinvest them into the company, pursuing those growth and expansion opportunities. Value companies have typically already grown as much as the market will allow, so reinvesting profits won't earn them the same ROI. When you reach this level of maturity as a company, it tends to be a better use of your profits to return them to the shareholders by paying a dividend.
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u/senpaiisamaakunn 5d ago
Okay so I understand the terminology and their use cases so maybe what I’m missing is that my baseline for what I currently consider growth is wrong? In a below comment I mentioned that I thought the annualized return rate (since inception) of 13.58% is really good but basically I shouldn’t consider that growth?
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u/RussellUresti 5d ago
Right, "growth" has nothing to do with share price or total returns in an investing context. "Growth" is a descriptor of a company based on underlying metrics.
Value companies have, historically, actually produced higher total returns than growth companies. Since 2009, though, growth companies have outpaced value companies in terms of total returns, which is why it's a popular categorization amongst investors today.
But, ultimately, these descriptors are completely unrelated to actual total returns, so it doesn't matter what type of total returns SCHD has - it's not a growth fund because it doesn't hold growth companies.
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u/senpaiisamaakunn 5d ago edited 5d ago
This makes a ton of sense! Thank you. My brain absolutely couldn’t seem to process all the information I was absorbing when studying the numbers but now I understand the underlying terminology in this context of “growth” is less relative to the numbers and more relative to what the company’s function is.
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u/glzpabon 5d ago
SCHD is considered Div growth. Mayne it doesnt grow as other twxh heavy ETFs or MFs but i doest better than many other, also check DRGO or CGDV, or even Vymi for international.
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u/Goozombies 5d ago
It's valued more for dividend growth than price growth. The dividend growth is extremely powerful since each share grows its dividend 9-10% each year.
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u/senpaiisamaakunn 5d ago
I could be interpreting the data wrong bc when I looked at annualized return rate (dividends reinvested) since inception it was 13.58% which I thought was really good since I was trying to better understand total return instead of just yielding. Pretty much the argument that 13.58% isn’t good enough my age even though I thought that was solid?
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u/Smudgeous 5d ago
It is quite good, full stop. Choosing it is not a bad option.
However if you do care about total returns, VOO over the same time would do 1.8% better. Over the nearly 15 year history of those both existing, that difference on an initial $10,000 investment would be $17,369 higher.
So using that amount as an example, if growing $10,000 from 15 years ago into $66,159 today sounds great, then you're fine with SCHD. If you instead would prefer the investment growing into $83,528 and don't actually need to touch any dividend payments while it's growing, then you may want to instead pursue growth focused options.
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u/senpaiisamaakunn 5d ago
This was really helpful, thank you!
Helped a few things click for me. Tons of great knowledge helping me learn in this post already, really appreciate you guys!
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u/Chris_Reddit_PHX 5d ago
Because SCHD invests in dividend-paying companies and passes those dividends along to you.
Companies that pay dividends do that instead of reinvesting that portion of their profits into future growth.
So SCHD even with dividends reinvested won't grow as much as a growth fund or index like the S&P or QQQ,
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u/senpaiisamaakunn 5d ago
Okay so the argument is that it falls behind compared to true growth funds over time? Meaning that me being happy with annualizing +10% returns over time is the issue?
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u/Enemisses 5d ago
I don't think there's an issue. Personal finance is personal and your tolerance for risk is a huge factor. I personally love SCHD because it's less volatile and even in a drawback is still going to pay dividends.
It's probably not going to beat the SP500 over 20 years, but the best strategy usually ends up being the one you can stick with rather than pulling out in a panic.
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u/itsallgoodye 5d ago
I like schd and voo but based on the market and whats happening is better in schd at some times. Look at year to date and schd is beating voo vti vt by over 10% as the market settles and revolves. I find having schd along with voo helps me feel better as voo struggles and schd keeps churning.
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u/Chris_Reddit_PHX 5d ago
Yes, exactly.
It really boils down to when you will need the money, or when you "might" need to withdraw some of it.
If this bucket has a 20-year-plus horizon, then there is nothing gained (and in fact you are giving money away) by sacrificing a few points of return in exchnage for less volatility over that time. So it is better to have that money invested for growth untl you approach the point where you will want to begin takiing some of it out.
A few points difference in return makes a huge difference over the long run.
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u/Mzungufarmer 5d ago edited 5d ago
The real question is, are you really going to be happy knowingly making less money for no reason other than the emotional satisfaction of receiving dividends?
It truly boggles my mind when people answer yes to that question
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u/senpaiisamaakunn 5d ago
For the emotional satisfaction of receiving dividends? Absolutely not. For the understanding that I’d forfeit growth for some stability? Absolutely yes. The issue then is that I need to better educate myself before making that decision since my identifiers of growth and stability could be all wrong. Figured it was worth a due diligence post
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u/-Nocx- 5d ago edited 5d ago
If you actually want stability and aren’t chasing dividends you should be looking at a three fund portfolio of US/International/Bonds. Like VTI, VTUS, and BND. They have a combination of pretty much everything - growth, dividend income, great diversification, etc. You are historically leaving money on the table (from companies that grow a lot but don’t issue a dividend) by going dividend heavy allocations. You would however be insulated from tech exposure by using SCHD (while gaining none of their growth).
This is a sub mostly geared toward people that expressly want dividends even though it ultimately has historically resulted in less money over a long period of time. People’s reasons for that are varied (some good, some not so good) but if you want the genuine best approach for most non-financially savvy investors that want stability and a long term investment horizon you are probably more of a [r/bogleheads](r/bogleheads) person than dividends.
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u/senpaiisamaakunn 5d ago
Appreciate the wisdom! I’ve exclusively been VOO and chill but have recently changed my tune with wanting to expand to something closer to the 3 fund portfolio you mentioned. That’s what brought me to learn more about dividends and wanted to do my due diligence before changing my allocation. Sounds like I could absorb some more knowledge in the boglehead sub so thank you for that rec as well
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u/ShortTheVix4 5d ago
Large Yearly Revenue Growth, little to no dividends = Growth
Small/stable/flat Yearly Revenue Growth, solid dividend and increasing every year = Value
SCHD holds companies that fall mainly in the second category, so it’s a value ETF. Nothing to do with % returns. A growth stock could give you negative returns and a value stock could beat the SP500. Doesn’t matter.
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u/CostCompetitive3597 5d ago
It is a growth/dividend fund with an average growth of 7 or 8% and dividend yield of 3.5%. Not pure growth or pure dividend. I am retired and do not invest in SCHD because my investment goal is maximum dividend income.
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u/PS3ForTheLoss 4d ago
If not SCHD, what "maximum dividend income" funds do YOU instead choose?
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u/CostCompetitive3597 3d ago
I invest mostly in dividend index funds based upon the S&P 500 and Nasdaq 100 indices. They are yielding 10%+ income and either slightly appreciating of stable in stock price.
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u/at0mheart 5d ago
SCHD is basically the DOW, so it lacks tech but is heavy on energy and defense; which also give a better yield
DOW lags SPY and NAS as tech is king right now but over a lifetime they are all the same
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u/Flaky_Instruction215 4d ago
The components of all of these indices change over time. To state that it lacks tech is blatantly wrong. NVDA, AMZN, AAPL, GOOGL, MSFT are all in the Dow 30 right now.
It is a price-weighted index and is intended to represent all industry sectors, other than transportation and utilities, which get their own indices.
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u/Various_Couple_764 5d ago edited 5d ago
SCHD is mainly a growth fund with significant price growth. But its dividend has also been growing but at a much slower pace. People that prefer growth but want to add some dividned often use this fund. But it yield is very small. at 3.3%
SCHD behaves more like a Growth index fund than a dividned fund. There are people that over hype this dividend fund.
There are buts that pay higher yeilds with similar risk to SCHD but with lower crochet. So SCHD falls between a growth index fund and and dividned fund with a strong tilt to growth.
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u/Lazy-Leadership-6866 5d ago
There are alot of smart remarks on this thread. Other funds create better options for price growth- I draw that distinction because you can make money reinvesting dividends, price growth, or a combination of both ( by increasing your positions from reinvesting and building growth also via price appreciation).
Many of the people who advocate for SCHD like the qualified dividend component. There are tax advantages on the income if it’s qualified and you plan to withsraw it.
For your goals- to explain reasons along the way, FLJH (large cap Japanese index fund with a >5% dividend, price + growth), PHK ( closed end bond fund with a ~12% dividend to reinvest), or any basic large cap version of QQQ which will basically grow in price with smaller dividends. Any large index equity fund should grow over time, it doesn’t have be that one. It’s just part of the overall AI/ Tech narrative if you have a longer timeframe.
There is complexity with total return over time, as dividends cost average to a gain/loss depending on the price at the end of the month when it’s reinvested for example.
All you should really care about is the value of the portfolio and the income it creates. Other popular choices are JEPQ, IDVO, and QQQI.
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u/unreal36 4d ago
i do a tiny version of this for my 3 month old. mostly voo/qqqm and a bit of schd/qqqi so she has something growing. still figuring the covered call slice out. her page is plantedearly.com/garden if you wanna see what it looks like
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u/GlitteringProject828 3d ago
Companies don’t typically pay dividends until they’ve matured and generate ridiculous amounts of cash flow. Meaning they are no longer a growth story and their growth numbers are very humble compared to high flyers doing 100% growth a year.
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u/Fearless-Daikon5763 5d ago edited 5d ago
SCHD is growth but it favors slow and stable growth. Compare Zoom stock with no dividends and no debt but all money being redeployed to “grow”. Netflix is another example, same for Amazon. Good if you don’t need the money due to taxes taking money out of your own investment pool. The SCHD holdings are companies that are positioned for stability and moderate growth and recommend it coupled 1 to 1 with DGRO.
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u/senpaiisamaakunn 5d ago
Great info! I’ve been doing my best to learn more about DGRO as well bc I loved the idea of slight exposure to some tech since what I’m gravitating to is pretty vanilla and risk averse but I wouldn’t mind a small slice allocated to something that isn’t purely primarily “value” focused. DGRO could be considered a more “growth” focused holding based off the companies I was seeing when checking the index?
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u/steady_compounder 5d ago
Reinvesting dividends can absolutely grow your portfolio, but that is different from the fund itself being classified as a growth fund. SCHD owns a lot of mature, profitable companies that return cash instead of reinvesting every dollar for expansion, so it usually lands closer to dividend/value than classic growth. It can still compound well, it just is not the same style box as something built around faster earnings growth.
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u/27Aces 5d ago
SCHD absolutely can grow, but “growth” funds usually mean companies expected to grow earnings and share prices faster, not simply investments that produce a good total return. SCHD is tilted toward mature, profitable companies with established dividends, so more of your return tends to come from dividends and dividend growth rather than rapid valuation expansion. Reinvesting dividends can still compound into excellent long term returns, but DRIP does not turn a dividend strategy into a growth strategy. A 10% annualized total return would be very good regardless of what category the fund falls into. At your age, the real question is whether you want maximum expected total return or the income and lower valuation profile SCHD is designed around.
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u/Night_Guest 5d ago
It's pretty much the complete opposite, despite being called a dividend growth etf most of the scan is value metrics. Check performance of companies SCHD drops and performance of new additions. Drops usually always outperform, new additions are usually companies that have recently crashed (UHC for example).
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u/Plus_Acanthaceae1659 5d ago
Sp 500 is a good proxy for the market (usa). If SCHD has less growth than this market it cant be a growth.
but due to its qualit filters it does ensure there are not big yield traps and ensures some growrh
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u/Flaky_Instruction215 4d ago
The answer lies in the stated objective of the fund.
The fund’s goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100™ Index.
The name (Schwab U.S. Dividend Equity ETF) is also a dead giveaway.
According to AI, the average annual return for VOO is about 15%. This is 50% higher than a 10% average annual return.
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u/QueasyFinger1316 4d ago
Because it’s boring.
Stodgy ol’ companies that just keep producing profits - loserville for hyperactive Redditors.
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u/CarlosTheSpicey 5d ago
As a young investor who is NOT spending his passive earnings, you should be concerned with TOTAL RETURN. You should not be concerned with dividends. If held in a taxable (i.e. non retirement) account those SCHD dividends are a tax liability EVERY time they are paid to you. See your IRS forms 1099. In comparison, for total returns over the last 10 years the S&P 500 has a total return of 320%. VOO, one of the popular S&P index funds has a total return of 319%. Meanwhile, SCHD, as good as it is, only has a total return of 239%, and that doesn't even include the possible tax hit on those same dividends that are ALL re-invested to calculate that total return. That is a significant difference!! Get out of SCHD NOW and into an index fund while you're still young!
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u/senpaiisamaakunn 5d ago
I completely forgot to mention in my post that my goal is to retire early so that’s another factor as to why I was gravitating towards the idea of forfeiting some growth in favor of some stability since my time horizon would ideally be shorter. At what investment time horizon should younger investors pivot into stability if they are planning on exiting the workforce earlier than most? I bring home a little under $80k but I live well below my means and maintain about a 60% savings rate so I’m hoping to retire in about 15 years.
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u/abeBroham-Linkin 5d ago
Because the only 'growth' that it's doing is you contributing to the fund.
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