The Schwab US Dividend Equity ETF (SCHD) is a popular dividend-oriented ETF, while the S&P 500 (or SP500 as some call it) is perhaps the best known index and benchmark in the world. Many investor compare their funds (such as SCHD) vs the S&P 500 index as it is the de facto benchmark for US equity exposure. While the S&P 500 is composed of large- and mid-cap stocks in the US, SCHD targets stocks that meet certain dividend-related requirements (as they are defined by the index provider). Even though the S&P 500 is an index, there are many related index funds out there.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
SCHD only owns stocks that meet the Dow Jones U.S. Dividend 100™ Index’s requirements, which has the effect of tilting the portfolio towards the value factor. The S&P 500 is composed of a more diverse portfolio including growth stocks. Historical performance of SCHD vs the S&P 500 has been similar, but will depend on how the value and growth factors perform moving forward.
Importantly, the S&P 500 is an index and cannot be invested in directly (but there are index funds that track it). Interested readers may want to read a review of SCHD vs SPY.
The Long Answer
Historical Performance: SCHD vs the SP500
Since SCHD’s inception date in 2011, performance has been relatively similar with an annualized difference of roughly .9%. This has compounded over time though and the cumulative performance differential is about 42%. Of course, it is important to note that SCHD is exposed to fees, while the S&P 500 is not an investment vehicle and has no costs.
As the SCHD vs the S&P 500 chart of historical performance illustrates, the S&P 500 has outperformed since inception. However, SCHD has outperformed over several periods of time including the calendar year of 2022 when the growth factor really underperformed the value factor.
Differences Between SCHD and the S&P 500
The primary difference between these two funds is that SCHD tracks the Dow Jones U.S. Dividend 100™ Index, while the S&P 500 is its own index.
Geographic Exposure
Both SCHD and the S&P 500 are essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two have identical country exposures.
Market Cap Exposure
Overall, the market cap exposures of SCHD and the S&P 500 are relatively similar.
| SCHD | the S&P 500 | |
| Large Cap | 78% | 82% |
| Mid Cap | 17% | 18% |
| Small Cap | 4% | 0% |
Sector Weights
There are some significant differences in sector weights, which makes sense based on the fact that SCHD is targeting high dividends and some sectors meet this criteria more easily.
| SCHD | the S&P 500 | |
| Basic Materials | 1.95% | 2.26% |
| Consumer Cyclical | 9.66% | 10.75% |
| Financial Services | 14.42% | 12.08% |
| Real Estate | 0.00% | 2.48% |
| Communication Services | 4.63% | 8.58% |
| Energy | 9.06% | 4.21% |
| Industrials | 17.48% | 8.26% |
| Technology | 13.34% | 28.55% |
| Consumer Defensive | 13.49% | 6.62% |
| Health Care | 15.69% | 13.58% |
| Utilities | 0.28% | 2.61% |
Expenses
SCHD’s expense ratio is .06%, while the S&P 500’s has no expense ratio because it is an index.
Transaction Costs
ETFs are free to trade at many brokers and custodians, so both SCHD should be free to trade in most cases. Additionally, SCHD is among the largest ETFs and is very liquid. The bid-ask spread of both SCHD is very low at .01%, so individual investor trades will not generally be large enough to “move” the market.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). SCHD has never made a capital gains distribution (nor do I expect it to moving forward). Thus, SCHD funds is about as tax-efficient as any fund can be and is fund is appropriate in taxable accounts, although the dividends do create a very slight tax drag.
Final Thoughts: SCHD vs the S&P 500
SCHD does what it is designed to do. I would not personally use dividend ETFs as the core of a portfolio, but that is a personal opinion and not necessarily the consensus. For a core position, I would personally choose an S&P 500 index fund over SCHD (such as IVV, which I like more than SCHD). However, investors looking for a satellite position in order to tilt their portfolio towards value could do a lot worse than using SCHD. At the end of the day, this fund and index are not necessarily comparable because they have different exposures and one in investable and the other is not.
