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The Dividend ETF That BEATS THE S&P 500 - SCHD ETF Review - YouTube
Channel: Jay Fairbrother
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what if i told you a high-yield dividend
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etf beat the s
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p 500 index by 13 last year
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is that something you might be
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interested in well that dividend etf
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is schd the schwab u.s dividend equity
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etf
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and we'll take a closer look at that now
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how's it going everybody welcome back to
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the channel my name is jay
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and on the menu for today we have
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another dividend etf
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this one is the charles schwab us
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dividend equity etf
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and it's under ticker symbol schd it's
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got a dividend yield that's double that
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of the s p
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500 and it has the growth to match so
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is schd as good as it looks we'll look
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at all the important details of schd
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how schd stacks up against similar
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dividend etfs
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and our general index etfs and whether
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or not
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schd is a dividend etf that has a worthy
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place in your portfolio but first i have
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to stop and ask you to please hit the
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like button down below on this video
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it's a simple gesture but it pays big
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dividends for both this video and my
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channel
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in the eyes of the almighty youtube
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algorithm so with that out of the way
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let's dig in let's look at schd
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the schwab u.s dividend equity etf and
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the first thing we got to look at is how
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does the schd etf
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choose the dividend stocks that it holds
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the first level of the selection
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criteria for the schd etf
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is the index that it tries to track and
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the index used for schd
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is the dow jones u.s broad market index
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now an important thing about this index
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is there are no reits included
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and that's an important factor because
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generally reits are
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big dividend payers and there's
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something that you might find included a
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lot in a dividend etf
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such as a chd next schd looks for 10
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consecutive years
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of dividend payments that means only
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consistent dividend payers
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stocks that have shown over a relatively
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long period that they can keep and pay
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out a dividend
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are going to meet the criteria for this
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etf next up the stocks included in schd
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have to have a minimum market cap of 500
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million dollars that means we're
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generally talking about larger companies
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large cap established stock and another
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important part of the schd criteria
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are that the stocks included have to
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have a minimum daily trading volume of
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2 million shares per day over a three
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month period just make sure that any
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stock that gets included in etf
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has a good volume and the etf isn't
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going to get stuck being unable to buy
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or sell it when needed once sdhd goes
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through all of those steps
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stocks are then ranked in descending
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order by dividend yield and only the top
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half are selected
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but it's not like those top half get
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automatically thrown
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into the etf a chd will then score each
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one of those stocks on the following
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criteria
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the company's cash flow to the total
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debt the return on equity
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the indicated dividend yield that means
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it factors in
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any announced dividend raises or cuts
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and the five-year dividend growth rate
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schd will rank each stock according to
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each one of those factors
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compare them all against each other and
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then select the top
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100 scoring stocks according to all that
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criteria i just listed there's a pretty
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strict criteria on how
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stocks are added and maintained within
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the schd etf as well
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first off stocks are weighted based on
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their market cap
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so larger companies will have a larger
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weighting no one stock
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can make up more than four percent of
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the etf at any one time that's an
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important factor because you don't want
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any one or two stocks weighing too
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heavily
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on the performance of the overall etf
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then again there are no reits in the
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schd etf
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and along with making sure that no one
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stock makes up more than four percent
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of the etf they make sure that no one
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sector
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makes up more than 25 of the overall etf
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so by limiting how much an individual
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sector can make of the etf
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you limit the positive or negative
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influence that any one industry is going
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to have on your on your overall returns
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now in the event any one stock or any
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one sector does become
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too heavily weighted and goes over those
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limits for an extended period of time
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the schd etf will rebalance to get
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things back in line otherwise
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the etf only rebalances its holdings on
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an annual basis
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so there's not a ton of trading that's
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going to be going on in the schd etf
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when rebalancing time
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does come the only way one of those 100
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stocks is going to get knocked
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out of the etf is if its ranking score
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based on those factors we talked about
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earlier
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knocks it out of the top 200 stocks that
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are being evaluated so when schd
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does kick stocks out when it rebalances
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the new stocks it brings in
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it brings in the highest ranking stocks
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first
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then they repeat that process until all
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100 slots are filled
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and that's the new holdings for the etf
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in the next year naturally the next
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question is what are the top holdings of
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schd
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here you can see the top 10 holdings of
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schd
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as they currently sit the top 10 stocks
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make up just over 40
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of the total assets of the etf we got
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the home depot leading the way
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at 4.58 percent followed by ibm
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at 4.18 and pfizer at 4.17
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those are above the 4 threshold and if
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they stay that way or if they grow to a
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higher percentage
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yes they will get rebalanced down
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following those we have pepsi
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texas instruments cisco systems
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coca-cola
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amgen broadcom and blackrock so you're
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probably familiar with
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most if not all of those names they're
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solid companies that been around a long
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time and have
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good histories as solid dividend payers
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when you're evaluating dividend etfs
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like this it's important to take a look
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at the top holdings
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because these aren't following just a
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general index like say the s p
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500 within dividend etf each one is
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going to be
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vastly different so you really want to
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look into them
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see what they hold see how they choose
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their stocks and see how they perform
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and that
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ever so smoothly leads us into
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how does schd perform and we'll start by
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comparing schd's performance
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to one of the other most popular
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dividend etfs on the market today it's
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one i
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also did an entire video on in the past
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and that's
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vym which is the vanguard high dividend
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yield etf
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when we look at schd versus vym
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you can see over the past year schd has
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outperformed vym with dividends included
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by 13 if we take a step back and we
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compare
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schd versus vym for the entire history
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of
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schd's existence chd outperforms vym
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over the past 10 years by 68 dividends
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included that's a
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huge difference in overall returns
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between two things that on the surface
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look like they both have the same goal
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both these generally yield
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the same amount when it comes to the
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dividends schd
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vastly outperforms when it comes to the
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added growth on top of that
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next let's look at how schd performs
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compared to a broad market index fund
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this is generally where the flaws in
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these dividend etfs come out
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when we took a look at vym back in that
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video we saw
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vym severely lagged the overall
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performance of vti
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even when taking in consideration higher
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dividend yield that vym has
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so let's look at schd versus vti
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if we look at the past year's
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performance schd
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actually outperforms vti by nine and a
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half percent
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over the history of the etf it only lags
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vti
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by four percent over the history of the
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etf it's essentially
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even with the total broad market index
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that vti
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is and yes like i mentioned in the intro
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the numbers i teased you with if we
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compare schd
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versus vo which is the s p 500 index etf
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over the past year
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schd outperforms by 13.4
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over a three year period it's
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outperforming the s p 500 by over
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10 and just like we saw with vti
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since the inception of the fund it only
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lags the s p
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500 index very slightly at about 5
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this is an extremely impressive
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performance
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from a dividend etf not only that it
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only lags the broad market index funds
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by a few minuscule percent
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over a 10-year period but that it's
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outperforming over both
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one and year periods if you think about
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what's been going on in the markets over
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the past three to five years the massive
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gains the massive returns
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in the markets have been driven by these
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high-growth tech stocks
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that don't pay dividends they're not
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going to be included in something like
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schd but they
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are included in vti they are included
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in vo the s p 500 for all this growth in
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the overall market to be dominated
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by those high growth tech stocks yet
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this dividend etf to be outperforming
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them
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is nothing short of extraordinary in my
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opinion okay
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so what's the catch this thing has
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extremely high fees right
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sure the performance looks great the
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dividends are great but
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we gotta pay for it right
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actually not so much schd has an expense
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ratio of 0.06 percent
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yes that is higher than our typical
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vanguard index funds we love
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vti vo are both at 0.03 but it's right
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in line with vanguard's dividend index
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vym which is also 0.06
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some other quick notes to look at are
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schd historically has a dividend yield
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between two point seven and three
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percent
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this is right around two two and a half
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times what you're going to get
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out of something like vo or vti so it's
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got a dividend yield
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well above the general market also the
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dividends per share for the etf
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have grown every year of its existence
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back in 2012
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schd was paying 81 cents per share in
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the dividend whereas last year in 2020
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that had risen
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to two dollars and three cents per share
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not only you're getting a good yield
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you're getting good performance
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but you can also count on steady
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dividend growth as well if you're still
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with me
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please hit the like button down below if
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you haven't already like i said it
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really helps out
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subscribe to the channel if you want to
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see more videos like this
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the pros of the schd etf in my opinion
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are it's got a good balance of yield and
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high quality stocks it's not an etf
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that's chasing high dividend yields in
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crappy stocks
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if we looked into this thing and saw oh
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10 of the etf
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is made up of att which is a stock that
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a lot of people loved
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for its really high dividend yield but
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as we usually see with those kind of
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stocks its dividend is getting cut
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by 40 or 50 schd really doesn't go
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chasing that kind of thing and that is a
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good sign
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another pro as we just talked about in
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depth it's got really impressive growth
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for a dividend etf so you're not
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sacrificing overall returns just in the
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name of income
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another pro it's got a low expense ratio
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0.06 percent
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again basically nothing very low cost
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etf which we always love to see and i'm
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a big fan that no one stock makes up
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more than four percent of the overall
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portfolio it does its job to keep it
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well diversified
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doesn't let any one company have too
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much of effect on the overall etf
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a couple cons to the schd etf that you
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may want to consider are
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only 100 stocks are included in the etf
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that means it's
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definitely not as well diversified as an
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index fund like the s p 500 index which
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led 500 stocks
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vti which has over 3 000 stocks or even
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its competitor vym which holds over 400
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stocks a little more concentrated than
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those even though
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it does its job to diversify within
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those hundred stocks and another con
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another thing we might want to take
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pause at is that the schd etf has only
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been around since 2011.
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so we've only got 10 years of history
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and those 10 years of history are in one
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of the best
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roaring bull markets we have ever seen
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we don't know how the etf will perform
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if we get an extended recession
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we don't know if it'll be able to keep
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up its performance and its dividend
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payouts like that i have no reason to
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believe
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it won't perform all right in a
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recession just based on how stringently
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they pick stocks
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but we haven't seen it yet because we
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only have those 10 years of history
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all things considered though i think
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schd is probably one of
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the best dividend etfs on the market
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today
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full disclosure i have added schd
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to my passive etf portfolio that doesn't
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mean it's right for you and your
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investing criteria you got to make those
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decisions for yourself
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but in the name of transparency i should
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say yes i do own it i did buy some you
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want to see my other videos on the other
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dividend etfs we've looked at so far you
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can check
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those out right over here subscribe to
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the channel if you haven't already
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i really thank you for watching i hope
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you enjoyed this and i will see you in
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the next video
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