SCHD is Different

Yesterday, I posted this video on SCHD and was bombarded with comments asking why I chose SCHD over JEPI, JEPQ, QYLD, or any covered call income funds.

On the surface, the answer is obvious. The answer is actually right there in the above sentence. SCHD is not a covered call income fund. SCHD is a Schwab U.S. Dividend Equity Fund. SCHD invests in 104 dividend paying stocks. Companies like Amgen, Cisco, Home Depot, Merck, Coke, Pepsi, etc.

In addition to benefiting from their 3.56% dividend, you also get to benefit from the long term appreciation of the assets in the fund.

In the last 10 years, SCHD is up 122%. Their dividend has grown over 13% in the last 5 years. Both the stock and the divvies are expected to grow long into the future. Meaning if you dump a decent amount of money into this fund every year for the next 30 years, you’ll be doing pretty well for yourself.

On the other hand, we have covered call ETFs. And while both covered call ETFs and dividend based ETFs pay dividends, that’s basically where the similarities end. SCHD doesn’t generate their income from selling covered calls, as JEPI does. Covered call income can fluctuate. The funds don’t benefit from the stocks long term growth as the shares are also more likely to be called away.

The exception, of course, is funds that only sell covered calls on a percentage of their holdings, so you can benefit from asset appreciation AND the covered calls. JEPI is one of these.

So when people pop up in my comments asking why I didn’t mention JEPI as the King of the Dividend ETFs … it’s because JEPI is an income bases fund that sells covered calls. The dividends will change ALL the time based on the market volatility.

It isn’t fair to compare them because there really is no comparing them. They’re different.

But that doesn’t mean you should ONLY invest in one and not the other. As long as you understand the risks of covered call ETFs, they can be a part of a diversified portfolio.

Last note: I also got some comments asking why I didn’t mention SPLG, VOO, or SPY. The reason is simple: those three are S&P 500 Index Funds. They aren’t dividend funds. They aren’t covered call funds. These funds invest in the S&P500.

But I’ll say here what I said in the comments on TikTok: it isn’t an either/or. It can and maybe should be a “both.” In my opinion, an S&P500 index fund is the foundation on which you build your portfolio.

After that, you look into other index funds: growth/tech based, REIT focused, dividend focused, and maybe even a small amount of money dedicated to covered call income funds.

Before investing in anything, it’s important to understand what you’re invest in and what the differences are.