SCHD is an attractive foundational dividend ETF; allocate about 25%. It yields ~3.5% (up to 4.2%), with dividend CAGR ~11% over 10 years and ~7.23% over 5, using the lower rate. Diversification is broad (~100 holdings), and annual reconstitution mitigates valuation risk. Suits income and dividend growth.

our first investment in the portfolio will be a foundational investment, which is very popular in the income community, and that is SCHD. We will allocate about 25% of the portfolio, or $250,000, to it.

If we look at SCHD historically, what we see from a dividend yield perspective is that its average primary yield over the last 5 years has been around 3.5%, and at times it has gone up to 4.2%.

However, 3.5 % is considered a rough average historically.

So, we would apply a 3.5% yield to that allocation, which means that this investment would yield roughly $8,750 in the first year. And of course, this is where SCHD has historically been successful.

Why? Because take a look at that dividend growth rate. We can see that SCHD continues to increase their dividend payments every year.

The 10-year dividend CAGR is around 11% and the 5- year rate is around 7.23%.

So, we'll take the smaller of these two numbers , because I think that even if they are able to grow the dividend at a faster rate , our goal is not to be overly optimistic.

So yes, SCHD's initial dividend yield is great, the dividend growth rate is excellent, and since it's an ETF, you get the benefit of additional diversification. We can see that there are roughly 100 holdings in this ETF.

and it is also very well diversified in terms of sectors. And while all of this is true, there is another very important thing about SCHD. We know that the market is currently trading at one of the highest valuation levels in its history. However, SCHD mitigates many valuation risks.

Believe it or not, SCHD reduces this risk to some extent. Why does this happen ? This is mainly due to the restructuring that is carried out every year through the SCHD's procedures.

So basically, SCHD has a specific stock universe or range of shares. They select their stocks from the Dow Jones US Broad Stock Market Index, which does not include REITs. There are also some basic screening processes , such as looking at liquidity, minimum market cap, and dividend payout history.

Although there are some quality or quality verification screens , the thing we need to pay special attention to is. The best stocks that pass the preliminary selection are ranked based on annual dividend yield, and only the top 50 percent are eligible for selection.

But think about what naturally happens as a result of choosing the highest dividend- paying stocks for this ETF. When a company's share price increases faster than its dividend, its dividend yield decreases.

And since SCHD's underlying index screens for dividends above the median and includes dividends in its composite ranking. A stock becomes less competitive for inclusion when its price exceeds its dividend payout.

In other words, if a stock's price is increasing at a rate much higher than its overall dividend yield , it most likely means that the stock's PE multiple is decreasing. And since they implement this restructuring process every year, SCHD naturally holds many stocks that have PE multiples much lower than the S&P 500.

So in a year like last year , when SCHD saw a share price increase of more than 25 percent, we will likely see many stocks drop out of the fund and new ones join during the annual restructuring in March.

So you see, from a dividend perspective, a dividend growth or dividend growth perspective, even from a valuation risk mitigation perspective— it's a very attractive foundation in a dividend portfolio.

Whether you're looking for immediate income, dividend growth, or both.