The Schwab US Dividend Equity ETF (SCHD) has crashed and moved into a correction in the past few days as jitters on trade escalated. It tumbled to a low of $24 on Monday, its lowest level since February 9. This article explains why it makes sense to buy and hold the SCHD ETF dip.
SCHD dividend yield is rising
The SCHD ETF is a popular fund that investors buy because of its long track record of dividends. It has one of the best track records regarding dividend growth in the stock market. Data shows that the ten-year compounded annual growth rate (CAGR) of the fund in the past decade stands at over 13%.
The benefit of buying the SCHD fund dip is that its dividend yield rises as the stock crashes, offseting some of the losses. For starters, the dividend yield is calculated by dividing the annual dividend per share by the price per share and then multiplying by 100.
Therefore, if the price per share falls and the annual dividend remains the same, the yield increases. That’s because the dividend yield becomes a larger percentage of the lower share price.
This explains why the dividend yield of the SCHD ETF has continued rising in the past few days as the stock crashed. It now has a yield of about 4.1%, higher than where it was earlier this year when it surged to a record high.
It also explains why popular stock ETFs like those that track the S&P 500 and Nasdaq 100 indices have a tiny dividend yield.
Exposure to US tariffs
The other reason to buy the SCHD stock dip is that Donald Trump’s tariffs will not substantially affect many companies in the fund. Ideally, the most exposed companies are those that are in the cross-border trading industry.
The biggest component of the SCHD fund is financials, a sector that is largely immune to these tariffs. The top financials companies in this fund are Fifth Third Bancorp, Cincinnati Financial Corp, Regions Financial, Comerica, and Columbia Banking System.
Trump has not applied any tariffs on services, and many of these companies are domestic ones. Therefore, tariffs in themselves will not affect them. It may affect them if the US goes into a recession, leading to another crisis in the regional banking industry.
These tariffs will not impact the other top SCHD ETF constituents. Verizon, the biggest component, is a telecom company that offers essential services in the US. Customers will not cancel their subscriptions even if the US move into a recession.
Other top SCHD firms like Coca-Cola, PepsiCo, ConocoPhilips, Chevron, Altria, Amgen, and Bristol Myers Squibb will not be impacted since they offer essential services.
Stocks will recover after the panic
Fear and greed index chart
The other reason to buy the Schwab US Dividend Equity ETF applies to other US stocks as well. Historically, these assets tend to bounce back after the initial panic. For example, they crashed after the COVID-19 pandemic, dot com bubble, the Great Financial Crisis (GFC), and the Great Depression.
Therefore, there is a likelihood that the same will happen this time. That will happen if the Federal Reserve starts cutting interest rates and if the US negotiates with other countries like Japan, China, and the European Union. Remember that Trump views the stock market as the most visible gauge of his performance as the president.
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