Investors who are embracing exchange-traded funds (ETFs) as avenues for generating dividend income have likely heard of the Schwab U.S. Dividend Equity ETF (SCHD +0.11%), and for good reason. That $85.2 billion behemoth is the second-largest fund in its respective category.
That’s big enough to overshadow a cadre of rivals and even some “relatives.” Such is life for the Schwab International Equity Dividend ETF (SCHY 1.72%), which lives in “big brother’s” shadow, but that’s not a knock on this ETF.
This Schwab dividend ETF is an international star. Image source: Getty Images.
Let’s look at the tale of the tape. This international ETF turns five years old in April and has $1.9 billion in assets under management (AUM), so it’s not new nor tiny, but there are more important reasons this Schwab fund deserves attention.
With this ETF, income meets value
Investors who have been actively following market trends over the past year or so know about the resurgence of international stocks against their domestic rivals. That scenario arrived following years of U.S. leadership fueled in large part by megacap growth stocks.
An interesting element in the international rebound equation is that it’s receiving ample contributions from value stocks, including dividend payers. That’s music to the ears of market participants who have been engaged with this Schwab ETF for some time because it’s classified as a foreign large-cap value fund. It’s a detail that matters because this ETF beat the MSCI ACWI ex USA IMI index (which tracks international stocks) by nearly 400 basis points for the 12 months endrf Feb. 26.
Importantly, the ETF delivers on its income promise, with a trailing-12-month distribution yield of 3.36%, 31 basis points ahead of the aforementioned international index.
Schwab Strategic Trust – Schwab International Dividend Equity ETF
Today’s Change
(-1.72%) $-0.58
Current Price
$33.34
Key Data Points
Day’s Range
$33.19 – $33.49
52wk Range
$22.97 – $34.04
Volume
937K
Discerning dividend investors will want to know how this ETF sources dividends and just how sustainable the payouts are. The answers are encouraging. This fund tracks the Dow Jones International Dividend 100 index, which comprises 100 ex-U.S. high-dividend stocks. Obviously, a dividend yield of 3.36% isn’t alarmingly high, and it’s certainly not a sign of a roster littered with yield traps.
The reason this ETF doesn’t carry a worrisome yield is that its index focuses on consistency, financial metrics signaling sound fundamentals, and favorable volatility characteristics. It’s fair to say those traits could delight even the most demanding equity income investors.
This ETF’s best days may be ahead
Given this dividend ETF’s stellar run over the past year, it’s reasonable for investors to wonder if they missed the party. The prevailing wisdom suggests the answer is “probably not.” For example, international stocks are still attractively valued relative to U.S. peers, and the former are expected to notch solid earnings growth this year.
Drilling down into specific countries that could boost this fund this year, Germany, with its massive fiscal spending efforts, and Japan, with its plans to drive more shareholder returns, look like catalysts. Those countries combine for 12% of the fund’s geographic exposure.
There’s more good news. This Schwab ETF charges just 0.08% per year, or $8 on a $10,000 investment, making it appropriate for frugal long-term investors.
