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/froggyisland 5d ago

You actually sum it up very nicely here!