Five Minute Analysis

Comparing SCHD and LQD

Because I am helping several friends with their investments, I often give them recommendations regarding buying and selling. Sometimes there are investments their advisor picked for them that make no sense for the long-term investor. One such investment in a friend’s account is an ETF with the ticker symbol LQD. LQD is the iShares iBoxx $ Investment Grade Corporate Bond ETF. There are many reasons to sell this investment and very few reasons to buy.

Here are two images that I sent one of my friends this morning.

LQD is an investment I could never recommend.
I suggested my friend sell LQD and replace it with SCHD.

What the Pictures Tell Us

LQD is a poor long-term investment. While it is true that the expense ratio is a reasonable 0.14%, the investment has been seriously underperforming. If you bought LQD ten years ago, you have lost money. If you bought it five years ago, you have lost money. If you bought it one year ago… – you know the answer, don’t you! Although LQD pays a monthly dividend, the yield stinks. It is only 2.62%.

SCHD (Schwab Strategic Trust – Schwab U.S. Dividend Equity ETF), on the other hand, has a lower expense ratio and a higher dividend yield. If you bought SCHD ten years ago you would be up 179%. If you bought five years ago you would have gained 73%. If you had purchased shares of SCHD one year ago, you would be up 4%. It is true that SCHD is down 3.6% year-to-date, but bear in mind that the S&P 500 ETF SPY is down 10.3% YTD. (SPY – SPDR S&P 500 Trust ETF.)

Seeking Alpha QUANT Rating

It is not surprising that SCHD has a QUANT rating of 4.77 (strong buy), while LQD has a QUANT rating of 1.56 (Sell!) Just out of curiosity, I also looked at LQD, SCHD, DGRO, and VYM at Weiss Ratings. Again, I am not surprised. LQD could never pass even a basic math class.

Weiss Ratings makes clear their recommendation regarding LQD – SELL!

Dividend Growth Rate Comparison

LQD fails miserably on this measurement as well. LQD’s 5-year dividend growth rate is -4.88%. SCHD, on the other hand, has a 5-year growth rate of 11.98%. VYM has a 5-year growth rate of 7.05% and DGRO clocks in at 10.20%. When you have inflation, you want growing income.

For ETFs, always compare dividends for comparable quarters.

Full Disclosure

Cindie and I own 750 shares of SCHD as a long-term investment. At current prices, this investment is worth $58,440. We also hold 3,325 shares of VYM and 501 shares of DGRO.