The 3rd Friday in March is a special day… because it’s Reconstitution Day for SCHD!
What the heck is Reconstitution?
Reconstitution is a process where companies within an Exchange Traded Fund (ETF) are reviewed against a specific set of standards.
If they continue to meet the criteria, they remain in the ETF.
If they don’t, they are removed.
In this week’s issue we’ll review:
The Reconstitution process for The Schwab U.S Dividend Equity ETF (SCHD)
The specific criteria for inclusion
When we can expect to see changes in the ETF
📖 Chapter 1
Our story begins with The Dow Jones US Broad Market Index.
This is 2500 of the largest stocks in the United States.
And only 100 of the 2500 companies will receive “Invitations” to the SCHD “party”.
All potential “party goers” are screened based on three different criteria.
A minimum:
10 years of dividend payments
Float adjusted market cap of $500 million US dollars
Three month average daily trading volume of $2 million
🎯 The goal of SCHD is to strike a balance between a source of income through dividends and the potential for long term growth in the value of the investment.
📖 Chapter 2
After passing the 1st three screens, companies are then ranked from highest to lowest based on their Annual Dividend Yield.
The top half are eligible for stock selection.
The remaining eligible companies are then ranked again based on 4 more criteria:
Cash flow to debt
Return on equity
Dividend yield
Five year dividend growth rate
From there, the 100 top ranked stocks are selected to be a part of the index.
💌Invitation sent!
SCHD is a popular ETFs amongst Dividend Investors.
It’s currently my largest holding making up 27.5% of my Portfolio.
📖 Chapter 3
This ETF has a total expense ratio of 0.06% and currently has 104 different holdings.
But there are a few more things you should know about the reconstitution process for SCHD:
No single stock can represent more than 4% of the index.
No single sector can represent more than 25% of the index
(as measured at the time of index construction, reconstitution and any rebalancing).
Right now, it looks like the top five holdings of SCHD might need to be rebalanced as they make up more than 4%:
Broadcom: 5.08%
ABBVIE: 4.68%
Merck and Company: 4.62%
The Home Depot:4.35%
Amgen: 4.07%.
In terms of Sector Specifics, SCHD doesn’t currently have more than 25% in any one sector:
📹For more information about SCHD, I have a playlist you can check out on the Hopeful Investor YouTube Channel: SCHD Playlist.
📖 Chapter 4
🗓️With Reconstitution scheduled for March 15th, we can expect to see the changes take effect on Monday March 18th.
Stay tuned, I’ll share the updated holdings in SCHD after Reconstitution is complete!
Prosperity 52 Update
Last week I added:
💵 2 shares of The Schwab U.S. Dividend ETF (SCHD)
💵 4 shares of Altria Group (MO)
Year to Date I’ve added the following:
➡️ 15 shares of SCHD
➡️ 4 shares of SCHG
➡️ 1 share of NEE
➡️ 4 shares of PFE
➡️ 8 shares of MO
As of 4:54 p.m. on Friday, February 16th (when I’m writing this for you all), my Hopeful Investor Portfolio is inching toward the next big milestone; $100,000!
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Disclaimer
All stock opinions and research are for Informational and Educational Purposes only and are based solely on my opinions.
Each investor should perform their own due diligence before investing in any stock.
I am not a financial advisor, just a Hopeful Investor working toward Prosperity in all the things.
This isn’t advice, so if you need advice a Financial Advisor might be advisable. 😉
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