Top 6 Stocks Inside the Dividend-Monster ETF SCHD

Investing in the stock market is one of the surest ways to create wealth over time. But over short periods, there is extreme volatility. The last four years are proof enough of that. We’ve gone from bull market to bear market and back again several times. 

One of the best ways to navigate turbulent times is by investing in dividend stocks. They tend to be profitable businesses tested by numerous economic upheavals in the past. They not only survived the turmoil, but continue to thrive — and they share their success with shareholders.

Because each income-generating stock has its own unique attributes, choosing the best ones to buy can be difficult. That’s why an exchange-traded fund (ETF) that owns all the best dividend stocks could be the way to go. Arguably the best vehicle for doing so is the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD), with over 100 dividend-paying stocks and a yield of 3.5%.

A monster opportunity

The Schwab ETF — most investors just refer to it by its ticker symbol SCHD — was created in 2011 and its goal is to track the total return of the Dow Jones U.S. Dividend 100 Index. Since its inception, the ETF has increased the amount of dividends it pays investors and its total return is 357%, or 13% annually.

Last year was the lowest year for dividend growth with just 3.8%, but over the past 13 years the fund has increased its payout by nearly 12% annually on average. Investors should also note the dividends aren’t static but change quarter to quarter, and though rare, they can decline. But again, they have never gone down year over year.

SCHD boasts $54.2 billion in assets under management and sports a super low expense ratio of 0.06%.

In short, with a history of above-average share price appreciation, dividend growth, and dividend yield, the SCHD ETF has established itself as the premier monster dividend stock to own. Below are the six top stocks the Schwab U.S. Dividend Equity ETF holds today.

Verizon (VZ) 

Comprising almost 4% of the ETFs holdings, Verizon (NYSE:VZ) has been a drag on performance with the stock down 30% over the last five years. However, the telecommunications stock reversed course beginning last October and is now up 31% from those lows.

That has a lot to do with Verizon narrowing its focus to its wireless operations, broadband quality and 5G networks. The ongoing 5G rollout represents the biggest upgrade to the nation’s telecom infrastructure in a decade. With upload and download speeds greatly increased, Verizon has the chance to significantly gain as data consumption is one of its most profitable areas.

This is showing up in Verizon’s finances as the telecom recently posted stronger than expected postpaid subscriber growth. The telecom was able to raise prices with few customer defections allowing for higher average revenue per user (ARPU) this quarter. Its rebounding performance should let Verizon support growing its dividend. The payout of $2.69 per share yields a tasty 6.7% annually. The telecom has increased its dividend for 17 consecutive years.

Texas Instruments (TXN) 

After the release of ChatGPT and Nvidia‘s (NASDAQ:NVDA) moonshot with artificial intelligence (AI), not many people are talking about analog computer chips. Yet they are critical for the day-to-day operation of most electronic gadgets and devices, appliances and cameras we own, as well as the cars we drive. Texas Instruments (NYSE:TXN) is the leading analog chip maker with $17.5 billion in annual sales and a 20% market share.

Last year revenue was down 13% from 2022 due to the pandemic-born chip shortage clearing up. Because the shortage caused manufacturers and automakers to place large orders to have inventory on hand, they haven’t needed to order more for some time. Now the inventory buildup is winding down as Texas Instruments’ end markets work through existing supplies. Expect that situation to reverse soon with orders to increase.

The semiconductor industry is cyclical and the chipmaker anticipates 2024 will be one of slow growth. But business will pick up again. In the meantime, Texas Instruments is up 23% from its lowest point in four years and its dividend yields 3% annually. The stock makes up 4.2% of SCHD’s holdings.

Home Depot (HD) 

Leading big box chain Home Depot (NYSE:HD) was hit hard by inflation as the cost of doing home improvement projects soared. Yet from last year’s trough, HD stock is up 36% as the lack of available housing inventory is leading to a new building boom. New single-family home construction rose 4% in 2023 and was up 1.5% in January. That represents a 19% jump from the year ago period.

Yet new housing starts are expected to decline in 2024. They were down 14% sequentially and off 1.5% from January last year. It’s a curious situation for the housing market. While the housing shortage has kept prices high and rising in some markets, historically high mortgage rates are not providing any dampening effect as they often do. Part of the reason is investor-back consortiums like Invitation Homes (NYSE:INVH) and American Home 4 Rent (NYSE:AMH) buying up available homes for the purpose of renting them. Professional contractors represent nearly half of Home Depot’s annual sales.

The home renovation center represents 4.4% of SCHD’s total holdings. Its dividend of $10.61 per share yields 2.8% and Home Depot has increased it for 24 straight years.

Merck (MRK) 

Drug developer Merck (NYSE:MRK) still enjoys strong support for its Keytruda cancer therapy and Gardisill human papillomavirus (HPV) vaccine, though they are facing patent expiration in the next few years. Fortunately, Merck has a robust pipeline of therapies in clinical trials. It started four phase-3 studies with new blood diseases drugs targeting and cancer. Results are expected in 2027 to 2028 just as patent expiry for its core therapies begin. It suggests Merck won’t lose its stride.

The pharmaceutical stock should also gain approval this month for sotatercept, a treatment for pulmonary arterial hypertension that analysts expect will generate $3 billion to $4 billion in annual sales. Merck gained rights to the therapy through its 2021 acquisition of Acceleron Pharma. There are several other late-stage drugs in development that could also generate over $1 billion in revenue for the drug company.

Merck is able to support its dividend that yield’s 2.4% and it has increased the payout for 13 consecutive years. MRK stock accounts for 4.5% of SCHD’s portfolio.

AbbVie (ABBV) 

Another pharma stock representing a significant position of the ETF (4.8% currently), AbbVie (NYSE:ABBV) has a record of hiking its dividend almost as long as Merck. The company was spun off from Abbott Labs (NYSE:ABT) a decade ago and began raising the payout immediately. Because Abbott was a Dividend Aristocrat, ABBV stock is also included on the list. The pharma has increased the dividend at a compounded 14% rate annually over that time.

AbbVie shares have been on a meteoric run higher and are already up 15% in 2024.There have been few down years in the stock’s history and it has generated a better than 700% total return since the spinoff.

Despite the loss of patent protection on its No. 1 arthritis therapy Humira, AbbVie hasn’t been affected as badly as many feared. While sales are down year over year, the drug is still reporting billions of dollars in sales. Coupled with multi-billion dollar sales from other drugs in its portfolio, AbbVie hasn’t missed a step.

Pharma stocks rely up a deep bench to support growth and ABBV stock has that in spades with its robust pipeline. 

Broadcom (AVGO)

Although Broadcom (NASDAQ:AVGO) has seen quite the runup in its shares like Nvidia, the chipmaker is still cashing in on the AI boom for semiconductors. Its network and server solutions for data centers are optimized for AI and Broadcom reported $1.5 billion in AI-driven sales, or 20% of the total segment.

Although the stock doubled over the past year, it suffered a 7% drop last week after reporting slower than expected sales growth. 

Fiscal first-quarter semiconductor sales of $7.4 billion were below forecasts of $7.7 billion. The chipmaker still expects to hit $50 billion in sales for the full year. AI sales are up, but core telecom sales are lower. Broadcom is a chip supplier to Apple (NASDAQ:AAPL), which accounts for 20% of revenue for the past two years. There are fears of a slowdown in iPhone sales in China.

As we know from Texas Instruments, the chip market is cyclical but Broadcom has gone a long way to diversify its operations. It used to be just a telecom chipmaker but has increasingly branched out into software. Numerous acquisitions over the years — most recently buying VMWare in November — has AVGO stock positioned to see software sales become its primary revenue source.

Broadcom is the largest holding in the Schwab U.S. Dividend Equity ETF with a 5.5% position. Its dividend of $19.05 per share yields 1.5% annually. The chipmaker has raised the payout for 14 consecutive years and has an incredible 36% compounded annual growth rate over the last 10 years.

On the date of publication, Rich Duprey held a LONG position in ABBV stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.