The Schwab US Dividend Equity ETF (SHD -0.86%) is a very popular exchange-traded fund (ETF) that has attracted around $63 billion in assets. One reason for this is the yield, which at 3.4% is almost three times the 1.2% you could collect from a S&P 500 ETF index. But there’s a lot more to the story than just yield, which makes the Schwab US Dividend Equity ETF a great place to invest $1,000 or more today.

What does the Schwab US Dividend Equity ETF do?

The Schwab US Dividend Equity ETF is passive exchange traded fundby following an index (the Dow Jones US Dividend 100 Index) that uses a set screening approach to create a portfolio of 100 stocks. People and their emotions don’t get involved (beyond creating the screens that are used to populate the index). Therefore, the stock screening approach of the index is the most important thing that investors need to understand.

Image source: Getty Images.

The first step in creating the index is to look at stocks that have raised their dividends for at least 10 years. Real estate investment trusts (REITs) and limited partnerships (MLPs), however, are excluded from consideration. This creates a list of companies that have proven that they believe it is important to return an increasing flow of cash to investors. Moreover, it shows that they have the wherewithal to sustain a growing dividend over a long period of time. That’s already a pretty strong list of stocks, but the Schwab US Dividend Equity ETF (or, indeed, the index it tracks) doesn’t stop there.

This is just the fund that the Schwab US Dividend Equity ETF pulls from. From this point, a composite score is created that includes cash flow to total debt, return on equity, dividend yieldand five-year dividend growth rate. Cash flow to total debt assesses financial strength, return on equity it quantifies the strength of the business, the dividend yield clearly refers to the income that investors receive, and the five-year dividend growth rate looks at dividend growth, which also indicates the growth of the business. These are all things you would probably consider if you were researching a dividend stock. The 100 stocks with the best composite scores enter the index and the fund, both of which are weighted by market capitalization. The portfolio is rebalanced annually.

You get all this for a low expense ratio of just 0.06%, which is extremely low.

Why is the Schwab US Dividend Equity ETF a great high yield ETF?

The first and most obvious reason why the Schwab US Equity Dividend ETF is attractive is its high return relative to the broader market, as measured by the S&P 500 index. But this is just the beginning. As mentioned, the Schwab US Dividend Equity ETF does more than pick a list of high-yield stocks; it’s cleaning up the list in a way that dividend investors would probably do themselves. The list of companies in the ETF is effectively made up of financially strong dividend stocks with high yields and a history of returning value to investors through regular dividend increases. And the cost is so low that it almost doesn’t make sense to try to do the same thing yourself.

SCHD given by YCharts

Moreover, the portfolio, with 100 stocks in it, is larger than most small investors could easily manage on their own. This provides diversification beyond what you might hold in a portfolio built one stock at a time. And with annual rebalancing, the Schwab US Dividend Equity ETF continually shifts the portfolio toward today’s most attractive investment candidates. This means he takes advantage of winning positions and reinvests in more attractive options, while also shorting stocks that have not performed as hoped. Building a portfolio is difficult, and maintaining it over time can be even more difficult. The Schwab US Dividend Equity ETF does both for you.

At its core, the Schwab US Dividend Equity ETF is a solid, all-in-one solution for investors looking for a high-yield ETF filled with high-quality stocks. And you only need to make one investment decision to enter all of this ETF’s offerings.

Schwab US Dividend Equity ETF: A Perfect Balance of Dividends

You can find ETFs with higher yields than the Schwab US Dividend Equity ETF. But you’ll probably have to accept some trade-offs, such as owning lower-quality companies or companies that don’t have a history of growing dividends. That’s the genius of the Schwab US Dividend Equity ETF’s approach — it strikes a healthy balance between quality and yield. If this sounds appealing to you, and you should, you’ll want to consider adding this ETF to your portfolio today.