Stock market sell-offs are often great opportunities to buy dividend stocks. That's because dividend yields move in the opposite direction of stock prices. So, with the stock market recently correcting (defined as a decline of 10% or more from the peak), dividend yields are now higher.
One of the easiest ways to capitalize on this opportunity is to buy the Schwab U.S. Dividend Equity ETF (SCHD 1.16%). The fund holds 100 of the top high-yielding dividend stocks. With its value falling with the market and its yield on the rise, it's a no-brainer dividend exchange-traded fund (ETF) to buy right now.
High-quality, high-yielding dividend stocks
The Schwab U.S. Dividend Equity ETF strives to track the performance of the Dow Jones U.S. Dividend 100 Index, which aims to measure the returns of stocks with consistent records of paying higher-yielding dividends backed by stronger financial metrics than their peers. Like that index, the ETF holds about 100 stocks. However, its top 10 holdings comprise more than 40% of its assets. That group is like a who's who of top-tier dividend stocks.
For example, top-holding AbbVie (ABBV 1.27%) has a terrific record of paying dividends. The pharmaceutical giant has increased its dividend every single year since its formation in 2013 and has grown its payout by 310% during that period.
NYSE: ABBV
Key Data Points
The company currently has a 3.1% dividend yield, which is more than double the dividend yield of the S&P 500 (recently 1.35%). The company can easily afford its high-yielding payout. AbbVie generated $18.8 billion in operating cash flow last year, more than covering its $11 billion dividend outlay.
Meanwhile, the company expects to deliver high-single-digit annual revenue growth through at least 2029, driven by growing sales of Skyrizi, Rinvoq, and aesthetics. That growth should enable the company to continue increasing its dividend.
The rest of its top holdings feature similar characteristics. They also pay high-yielding dividends they've increased at healthy rates for many years. That growth seems likely to continue since they also have strong financial profiles and growth prospects.
An attractive and growing income stream
Because the Schwab U.S. Dividend Equity ETF's holdings tend to have higher dividend yields, the fund currently offers an attractive income stream. Its distribution yield over the trailing 12 months is 3.6%. Meanwhile, the current yield is even higher at 3.8%, thanks partly to the 7% decline in the ETF's price due to the stock market sell-off.
To put that yield into perspective, every $100 invested into the ETF would produce about $3.80 of dividend income each year at the current payout level. That compares to around $1.35 of annual dividend income for every $100 invested into an S&P 500 index fund at its current yield.
Another great thing about this fund is that the income stream it produces steadily rises as the underlying companies increase their dividends:
SCHD Dividend data by YCharts.
As the chart shows, the fund's quarterly distribution payment has risen rather steadily over the years. The quarterly payment level has grown 550% since the fund's inception in 2012.
Given the fund's focus on holding high-quality dividend stocks with strong records of dividend growth, this upward trend should continue. Because of that, the attractive income yield that investors can lock in today due to the recent price decline will only grow more lucrative over time.
An easy choice for income
The Schwab U.S. Dividend Equity ETF is a smart fund to buy right now. The ETF holds 100 top dividend stocks known for paying high-yielding, steadily rising dividends backed by strong financial profiles. With its price down due to the stock market slump, it pays an even more attractive income stream that should continue to rise in the future.
