One-Year Treasury Tops SCHD Yield; Investors Reassess ETF

One-year Treasury yields rose to 4.06%, topping the Schwab US Dividend Equity ETF’s roughly 3.2% dividend yield. Short-term government yields climbed after Federal Reserve minutes showed some officials expect further rate increases later this year.

SCHD has recorded more than $13 billion of inflows this year and its assets are approaching $100 billion. The ETF’s total return year-to-date is near 20%, compared with about 9% for the Vanguard S&P 500 ETF and about 16% for the Invesco QQQ Trust. The fund’s expense ratio is 0.03% and its dividend growth has a compounded annual growth rate of 10.2%.

A $10,000 stake in SCHD would generate roughly $320 in gross dividends annually at the ETF’s yield. A one-year Treasury at current rates would pay about $406 over the same period. One- and two-year Treasury yields rose from their year-to-date lows to about 4.06% and 4.206%, respectively.

Treasuries pay a fixed interest rate if held to maturity, but their market price can move before maturity as interest rates change. SCHD distributes quarterly dividends and can provide returns from changes in its share price.

SCHD’s largest sector exposures include consumer non-durables, health technology, energy minerals and financials. The ETF’s price-to-earnings ratio is about 19, below the S&P 500’s roughly 22.

On the chart, SCHD has traded between $31.60 and $32.90 since May and remains above its 50-day and 100-day moving averages. The price pattern is in the handle phase of a cup-and-handle formation; a move above $32.90 would be treated as a breakout with resistance near $35.

Treasury yields and Federal Reserve guidance will affect the relative appeal of short-term government debt versus dividend-focused equity funds in the months ahead.