2 Schwab ETFs for Steady Retirement Income

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As the tail end of the Baby Boomer generation reaches the qualifying full retirement age, a considerable number of those entering or already enjoying retirement need to find a balance in their time management. Specifically, they need to find equilibrium between the time they devote to managing their retirement portfolios and the time they spend on travel, hobbies and other opportunities that were hindered by employment responsibilities. For those seeking to devote a minimum amount of work to the former while simultaneously being able to enjoy the latter (without undue daily financial worries), two Charles Schwab’s exchange-traded funds (ETFs) have proven to be a popular solution since the 1990s.  

For thousands of retirees who want to combine a growth component with mitigated volatility, diversification and income, the Schwab US Dividend Equity ETF (NYSEARCA:SCHD) has become a popular choice. Taking the diversification aspect one step further, there are dozens of financial investment opportunities every day taking place around the globe that often go totally unnoticed and unreported in financial media. For those investors seeking international exposure for their portfolios with a comparable degree of growth, income, diversification and risk containment, the Schwab International Dividend Equity ETF (NYSEARCA:SCHY) may appeal to them. 

Key Points in This Article:

• These two dividend-focused Schwab ETFs can provide a reliable stream of retirement income.
• While both provided strong yield, SCHD and SCHY are also focused on dividend growth. 
• Are you ahead, or behind on retirement? SmartAsset’s free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don’t waste another minute; get started by clicking here. (Sponsor)

Schwab US Dividend Equity ETF

Among retirees, the Schwab US Dividend Equity ETF (NYSE: SCHD) is an ETF that meets the growth, income and stability requirements of many portfolios that are providing living expense funds for those in their golden years. Designed to track the Dow Jones US Dividend 100 Index, stocks under consideration for inclusion in SCHD must meet the following criteria:

• Minimum of 10 consecutive years of dividend payments
• Floating market capitalization minimum of $500 minimum
• Minimum average daily trading volume of $2 million

Schwab deploys a four-step calculation that determines ranking, which may differ from that of the Dow Jones US Dividend 100 Index:

• Cash flow-to-total dDebt ratio
• Return on equity
• Dividend yield
• Five-year dividend growth rate

The top 100 scoring companies are included in the index. If two companies have the same score, the one with the larger dividend gets the higher ranking. At the time of this writing, other SCHD details include:

Dividend Yield	3.97%
Dividend Payment Frequency	Quarterly
Dividend Growth (trailing)	16.69%
Dividend Payout Ratio	56.99%
Total Assets	$68.16 billion
Daily Trade Volume Average	18.26 million shares
Inception Date	10-20-2011
Expense Ratio	0.06%
1-year trailing return	3.92%
3-year trailing return	3.77%
5-year trailing return	12.23%
10-year trailing return	10.58%

The top five weighted holdings in SCHD exemplify how the ETF provides investors with exposure to numerous sectors:

1. Coca-Cola: 4.35%
2. Verizon Communications: 4.34%
3. Altria Group: 4.30%
4. Lockheed Martin: 4.26%
5. Cisco Systems: 4.17%

The top five weighted sectors in SCHD are:

1. Consumer defensive: 19.65%
2. Energy: 18.80%
3. Health care: 14.55%
4. Industrials: 11.13%
5. Technology: 10.76%

A minimum of 90% of the stocks in the SCHD portfolio are also in the Dow Jones US Dividend 100 Index, although rankings may differ. 

Schwab International Dividend Equity ETF

For equivalent levels of criteria selection, growth potential, income, and stability in an international ETF, the Schwab International Dividend Equity ETF (NYSE: SCHY) complements SCHD very seamlessly in a portfolio.

Similarly to SCHD, SCHY will only consider companies with a minimum unbroken 10-year track record of dividend payouts, as well as market cap and liquidity parameters. The next 4 calculated elements determine rankings:

• Cash flow-to-total debt ratio
• Return on equity
• Dividend yield
• Five-year dividend growth rate

The top 400 stocks that make the cut are then calculated for historical price volatility, and those that exceed the overall average are eliminated from the running. The final 100 that make the cut that are added to the portfolio, under the following weighting caps, which are adjusted and rebalanced each quarter:

• No individual stock weighting to exceed 4%
• No sector weighting to exceed 15%
• Any emerging market sector stocks cannot collectively exceed 15%

Dividend Yield	3.89%
Dividend Payment Frequency	Quarterly
Dividend Growth (trailing 3-years))	20.29%
Dividend Payout Ratio	54.80%
Total Assets	$1.1 billion
Daily Trade Volume Average	361,208 shares
Inception Date	10-20-2011
Expense Ratio	0.08%
1-year trailing return	15.46%
3-year trailing return	7.67%
5-year trailing return	N/A
10-year trailing return	N/A

Like SCHD, the top five weighted holdings in SCHY also span numerous sectors:

1. Enel SpA: 4.69%
2. Wesfarmers Ltd.: 4.22%
3. Vinci SA: 4.18%
4. British American Tobacco: 4.04%
5. Unilever: 4.02%

The top five weighted sectors in SCHY are:

1. Consumer defensive: 15.82%
2. Financial services: 15.33%
3. Communications services: 13.15%
4. Industrials: 12.07%
5. Health care: 11.44%

Some Strategies to Keep in Mind

Retirees that are relying on their portfolio for their living expense income will likely want to keep the following tips in mind if adding SCHD and/or SCHY to an IRA:

• SCHD dividends are qualified dividends, meaning that they qualify for taxations at lower capital gains rates than as income. As dividends from SCHY are from international companies, portions of those dividends may not qualify, depending on criteria such as if the stock meets the minimum 61-day holding threshold from the ETF, etc. A tax-professional should likely be consulted if there are any questions.
• Required minimum distribution (RMD) mandates commence when an account holder reaches age 73. Depending on what other assets are in the portfolio, the long term viability of SCHD and SCHY to continue steady growth and continued reliable income should be weighed against any other assets to determine if they should be incrementally liquidated to meet RMD dictates, or if other growth assets might be more suitable. The  combination of growth, income and diversity offered from SCHD and SCHY might weather future market turbulence better than other assets which might be more geared for growth or only for income, and thus more vulnerable. 

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