What SCHD’s Own History Suggests About Its Price Today

The popular dividend fund is more expensive than its own recent past, but the earnings inside haven't kept pace.

After a +30% run over the past twelve months, the Schwab US Dividend Equity ETF (SCHD) asks a sharp question of new money. With a 10-year US Treasury yielding a safe 4.8%, is what you get inside this fund worth the price you now have to pay? The answer lies in comparing the cost of the fund to what its collection of companies actually earns.

Paying a Premium to Your Past Self

First, let's look at the price tag versus the fund's own history. SCHD currently trades at a trailing price-to-earnings (P/E) ratio of 20.1. For context, over the last five years, that same ratio has averaged 18.4. Today's price is about 9% above that recent average. You are, quite simply, paying more for the same basket of stocks than investors have on average over the past five years. The question is whether you are getting more for your money.

When the Engine Sputters But the Price Stays High

A higher price can be justified if the earnings of the companies inside the fund are growing quickly. But the data here tells a different story. For the fund's largest holdings, trailing twelve-month earnings per share actually declined about 3% over the past year. Looking back further, the earnings for those same holdings essentially flat for the past three years. Paying more for flat-to-shrinking profits is a tough equation. While analysts see a potential for one-year earnings growth of about 7%, that remains a forecast against a backdrop of recent stagnation.

A Wafer-Thin Reward for Taking the Risk

This brings us to the opportunity cost. The aggregate earnings yield of the fund's holdings, what the companies inside earn as a percentage of the fund's price, is 5.0%. That is only 0.2 percentage points above the 4.8% you could get from a risk-free 10-year US Treasury. This slim margin is your compensation for taking on stock market risk. It's a thin cushion, especially if earnings growth disappoints. Remember, this isn't an abstract portfolio; its five largest holdings make up 22% of the fund, led by companies including Abbott Laboratories at 4.7% and Amgen at 4.4%. Their performance is the fund's performance.

The Index Dilemma: A Bundled Approach

So, is today's price justified by what's inside? The numbers suggest you are paying an above-average price for a basket of companies whose recent earnings growth has been weak, all while the risk-free alternative offers a nearly identical yield. Owning an index fund like SCHD means you accept every holding at the prevailing price. The alternative for investors who find that price too steep is a more selective, quality-screened approach. The one figure that could change this picture is that 7% consensus earnings growth estimate. Whether the fund's holdings can deliver on that promise is the key thing to watch.

How Do You Choose Among Nearly 200 ETFs?

SCHD looks dear for what it holds today, which raises the obvious question: is there a cheaper way to get this exposure? Owning an ETF is one of the simplest ways to buy a whole market, sector, or theme in a single ticker, and that is a genuinely sensible way to invest. The hard part is not whether to use ETFs, it is which one: close to two hundred equity ETFs compete for the same dollar, and two funds promising nearly the same exposure can carry very different price tags for what is inside them. Our ETF Valuation and Performance Scorecard ranks the whole equity universe on exactly this test, from risk-adjusted return down to how each fund's price compares with its own history. And if you would rather not sort through it at all, the Trefis High Quality (HQ) Portfolio takes the systematic route a level deeper than any index: 30 individually screened names, rules-based and rebalanced, with a record of outpacing a benchmark that combines the three major indices - the S&P 500, S&P Mid-cap, and Russell 2000.