The Schwab US Dividend Equity (SCHD) ETF has done well this year and is sitting near its all-time high ahead of the upcoming US earnings season. It was trading at $84.16 on Wednesday, a few points below the all-time high of $84.7.
This price means that the fund has surged by over 413% since its inception in 2011, meaning that, excluding dividends and fees, $10,000 invested in the fund would be worth $53,125. With dividends included, the same amount would be worth over $60,000.
SCHD’s performance has been notable because, unlike other funds, it has done well without having exposure to the top technology companies that have driven the stock market return. It has no companies like CrowdStrike, Nvidia, Alphabet, and Microsoft.
Investors see SCHD as a Sleep Well at Night (SWAN) fund because of its little volatility. For example, it has had negative returns in three years since its inception: 2015 (-0.31%), 2018 (-5.56%), and 2022 (-3.23%).
In contrast, the S&P 500 index fell by 18% in 2022 and 4.50% in 2018 while the Nasdaq 100 fell by 32.58% in 2022.
Big stock split ahead
The SCHD ETF will be in the spotlight because of two key events: stock split and earnings. In a recent statement, Schwab said that it would implement a 3-for-1 stock split, which will take place on October 10.
A stock split is a common situation that is highly common in the stock market, where companies reduce their share prices and increase the number of outstanding shares. The most recent splits were companies like Nvidia and Broadcom.
Stock splits happen so that companies can make their shares more affordable to retail investors. For example, Berkshire Hathaway’s stock has soared to $678,000, making it unaffordable to many retail investors.
Today, however, many investors can gain access to these highly expensive stocks because of the concept of fractional shares. This is a situation where you can buy a tiny share of a company. For example, with $1,000, you can buy 0.00147 Berkshire Hathaway shares.
ETF splits are not common, and in some instances, are not necessary. In SCHD’s case, the stock was trading at $84.15, making it affordable to most people. A likely reason for this is that Charles Schwab does not offer fractional ETF trading and that it wants its funds affordable to most traders.
In the SCHD case, the stock will start trading at around $28, while the number of outstanding shares will rise from the current 735,550,000 to over 2 billion. In most cases, stocks rally ahead and after a split as more investors rush to buy.
Read more: ETF chart of the week: SCHD stock soars to a record high
Earnings season ahead
The other big event that will affect the SCHD ETF stock will be corporate earnings, which will start this week.
PepsiCo has already published its earnings, while Delta Air Lines and Domino’s Pizza will publish their earnings on Thursday. The most notable companies that will publish their results are big banks like JPMorgan, Wells Fargo, Blackrock, and Bank of New York Mellon, which will release on Friday.
Many companies in the SCHD will release their earnings in the next few weeks. The first name to watch will be Blackrock, the biggest asset manager with over $10.7 trillion in assets under management, which will publish its numbers on Friday.
Analysts expect the numbers to show that Blackrock’s assets continued rising, approaching the $11 trillion mark. Its revenue is expected to come in at $5.01 billion, while its annual figure will be $20.07 billion.
The other big name to watch will be Lockheed Martin, which will release its numbers on October 22. These numbers are expected to show that its revenues rose to $17.3 billion in the last quarter, an increase from $16.8 billion in the same period last year.
Lockheed Martin and other defense merchants are benefiting from the ongoing geoopolitical issues. It is also benefiting from the return of F-35 deliveries after a long pause, which explains why its stock has soared by about 40% this year.
Bristol-Myers Squibb, the sixth-biggest company in the SCHD ETF, will release its numbers on October 31st. The other notable companies to watch will be Home Depot, Verizon, Pfizer, Texas Instrument, and AbbVie.
A report by FactSet estimates that companies in the S&P 500 index will have earnings growth of 4.2%. If this is the final figure, it will be the 5th quarter of annual growth, which is impressive.
Financials, its biggest component, is expected to report negative growth of 0.5% because of American banks. This decline is understandable because of the relative weakness in the banking sector.
Health care, the second-biggest sector, is expected to have double-digit growth rates, which will offset weakness in the financials.
Altogether, the SCHD ETF will likely continue doing well in the long term, with my estimate being $100 or a split-adjusted level of $33.
Read more: Love the SCHD ETF? USA is a great 10% yielding alternative
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