Investors seeking income through dividend-paying stocks often consider two popular exchange-traded funds (ETFs): the Schwab U.S. Dividend Equity ETF (SCHD) and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). While both aim to provide exposure to U.S. dividend stocks, their underlying strategies, costs, and portfolios differ significantly, leading to distinct outcomes for investors.
A detailed comparison reveals key differences in expense ratios, dividend yields, and long-term performance. Understanding these distinctions is crucial for aligning an investment with individual financial goals, whether the priority is maximizing current income, minimizing fees, or achieving stable, long-term growth.
Key Takeaways
- SCHD offers a significantly lower expense ratio (0.06%) and a higher dividend yield (3.9%) compared to NOBL's 0.35% fee and 2.1% yield.
- NOBL focuses exclusively on 'Dividend Aristocrats' from the S&P 500, companies with at least 25 consecutive years of dividend increases, using an equal-weight strategy.
- SCHD tracks an index of 100 U.S. stocks based on dividend yield and financial strength, resulting in a different sector and company composition.
- Over the long term, SCHD has delivered higher total returns, largely driven by its superior dividend payments and faster dividend growth rate.
Cost and Yield: The Initial Comparison
For many investors, the first points of comparison for any ETF are its cost and its payout. In this regard, the differences between SCHD and NOBL are stark. The Schwab U.S. Dividend Equity ETF (SCHD) is known for its low cost, charging an annual expense ratio of just 0.06%. This means for every $10,000 invested, the annual fee is only $6.
In contrast, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) has an expense ratio of 0.35%, or $35 per $10,000 invested. While this is still below the industry average for many funds, it is nearly six times higher than SCHD's fee, a factor that can compound and impact returns over many years.
The disparity is just as significant when it comes to income generation. SCHD currently boasts a dividend yield of 3.9%. For income-focused investors, this higher payout is a major attraction. NOBL offers a more modest dividend yield of 2.1%, nearly half that of its Schwab counterpart.
By the Numbers: Cost & Yield
- Expense Ratio: SCHD at 0.06% vs. NOBL at 0.35%
- Dividend Yield: SCHD at 3.9% vs. NOBL at 2.1%
These figures highlight SCHD's immediate advantages for investors prioritizing low costs and higher current income.
Inside the Portfolios: Two Different Philosophies
The differences in cost and yield are a direct result of the distinct investment strategies each ETF employs. They may both target dividend stocks, but their selection criteria create fundamentally different portfolios.
SCHD: A Focus on Financial Strength and Yield
SCHD tracks the Dow Jones U.S. Dividend 100 Index. This index screens for high-yielding stocks that also demonstrate strong financial health, including factors like cash flow to total debt, return on equity, and consistent dividend payments. The result is a portfolio of 103 stocks that are not limited to a specific history of dividend growth.
This approach leads to significant exposure in sectors like Energy (20%), Consumer Defensive (19%), and Healthcare (16%). Its top holdings include established companies such as Cisco Systems, Amgen, and Abbvie.
NOBL: The 'Aristocrat' Standard
NOBL takes a more exclusive approach. It invests only in companies within the S&P 500 that have increased their dividend for at least 25 consecutive years. These companies are known as 'Dividend Aristocrats' and are often seen as symbols of financial stability and shareholder commitment.
Furthermore, NOBL uses an equal-weighting methodology and places caps on how much can be invested in any single sector. This prevents a few large companies from dominating the fund. Its portfolio is led by Consumer Defensive (23%), Industrials (20%), and Financial Services (13%), with top holdings like C.H. Robinson Worldwide, Cardinal Health, and Caterpillar.
What is a Dividend Aristocrat?
A Dividend Aristocrat is a company in the S&P 500 index that has not only paid a dividend but has increased its dividend payout for at least 25 consecutive years. This long track record is often interpreted by investors as a sign of a stable, mature business with reliable cash flows.
Performance and Risk Analysis
While past performance is not a guarantee of future results, it provides valuable insight into how these different strategies have fared. Since 2013, SCHD has generated a total return of 253%, outpacing NOBL's total return of 216%.
Interestingly, most of this outperformance is attributed to SCHD's higher dividend. If only stock price appreciation is considered, NOBL has performed slightly better. However, for dividend investors, total return—which includes reinvested dividends—is the more comprehensive metric.
SCHD has also demonstrated stronger dividend growth. Over the last decade, it has increased its dividend payments by an average of 10.4% annually, compared to 8.6% for NOBL. This indicates that not only does SCHD start with a higher yield, but it has historically grown that payout at a faster rate.
"The data shows that SCHD's combination of high yield and strong dividend growth has been a powerful driver of its total return outperformance over the past decade."
In terms of risk, both ETFs have shown resilience. Measured by beta, a metric of volatility relative to the market, SCHD has a beta of 0.79, while NOBL's is slightly higher at 0.86. This suggests SCHD has been marginally less volatile. A look at the maximum drawdown over the last five years shows similar stability, with SCHD falling 16.86% from its peak compared to NOBL's 17.92% drop.
Which ETF Is the Better Fit?
The choice between SCHD and NOBL ultimately depends on an investor's specific goals and priorities. There is no single 'best' option, only the one that aligns better with an individual's investment philosophy.
SCHD may be more suitable for investors who:
- Prioritize low management fees to maximize long-term returns.
- Seek a higher level of current income from their investments.
- Are comfortable with a strategy based on a blend of yield and financial metrics, rather than just dividend history.
- Want exposure to sectors like Energy, which have performed well recently.
NOBL could be a better choice for investors who:
- Value the prestige and perceived safety of investing in 'Dividend Aristocrats'.
- Prefer an equal-weighted approach that reduces concentration risk from larger companies.
- Are willing to accept a lower yield and higher fee in exchange for a portfolio of companies with exceptionally long track records of dividend growth.
Both ETFs offer a solid approach to gaining exposure to U.S. dividend stocks. However, SCHD's lower costs, higher yield, and stronger historical total return and dividend growth make a compelling case for investors focused on maximizing income and overall performance. As always, investors should consider their own risk tolerance and financial objectives before making any investment decisions.
