Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) is one of the most popular dividend ETFs and has a strong track record.
The First Trust Rising Dividend Achievers ETF (RDVY) has produced substantially better returns over the years using a similar strategy.
I wouldn't consider it a replacement for SCHD, but investors looking for a little more growth might want to consider it.
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) yields about 3.3%, charges just 0.06% annually, and has become the dividend exchange-traded fund (ETF) of choice for many investors. But there is another dividend ETF that uses a similar stock-selection strategy and has outperformed SCHD over the past decade -- by a lot!
That fund is the First Trust Rising Dividend Achievers ETF (NASDAQ: RDVY).
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Like the Schwab U.S. Dividend Equity ETF, it also considers elements of dividend growth, yield, and balance sheet quality in its methodology. It looks at cash-to-debt, payout ratio, positively trending earnings growth, and consistently rising dividends.
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But its process ultimately produces a completely different portfolio.
The First Trust Rising Dividend Achievers ETF has significant overweights in financials and technology relative to SCHD. It's underweighted in healthcare, energy, and consumer staples. That makes the First Trust ETF more growth-oriented and more economically sensitive. And it's those tilts that have really helped performance.
Over the past 10 years, the First Trust Rising Dividend Achievers ETF has returned an average of 15.96% annually (with dividends reinvested), compared with 12.5% for the Schwab U.S. Dividend Equity ETF.
To be fair, there are a couple of trade-offs to consider. RDVY has demonstrated about 20% greater volatility than SCHD over the years. Plus, its dividend yield is a scant 0.8%, making it not really an income investment at all.
The Schwab U.S. Dividend Equity ETF is still a great dividend ETF. But there's no denying the results of the First Trust Rising Dividend Achievers ETF.
David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.