SCHY - ETF Overview
A Comprehensive Guide to the Schwab International Dividend Equity ETF (SCHY)
For individuals seeking to learn about analyzing Exchange-Traded Funds (ETFs), I suggest reviewing my earlier post that explains the fundamentals of ETFs and the analysis process.
Schwab International Dividend Equity ETF (SCHY) - Snapshot
Overview
The Schwab International Dividend Equity ETF (SCHY) is an exchange-traded fund that seeks to track the total return of the Dow Jones International Dividend 100 Index, which comprises high dividend-yielding stocks from companies in developed and emerging markets outside the United States. SCHY focuses on large- and mid-cap stocks, excluding real estate investment trusts (REITs), and aims to provide investors with income through dividends and potential capital appreciation.
SCHD and SCHY are similar in their focus on high-dividend-yielding, low-cost ETFs managed by Schwab, targeting income-focused investors with defensive, quality stocks. However, SCHD invests in U.S. large-cap dividend payers, while SCHY targets international stocks, introducing currency and geopolitical risks but offering global diversification.
Investment Strategy
SCHY employs a passive investment strategy to replicate the performance of the Dow Jones International Dividend 100 Index. The index screens the global ex-U.S. large- and mid-cap stock universe for companies with a consistent record of paying dividends for at least 10 consecutive years. Eligible stocks are ranked based on a composite score evaluating: cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate. Refer to ‘Composition Methodology’ below for more information.
Top Holdings1
These holdings reflect SCHY’s focus on high-quality, dividend-paying global leaders in sectors like consumer staples, healthcare, and industrials.
Sector Allocation2
SCHY’s portfolio is diversified across sectors, with allocations designed to limit concentration (capped at approximately 15% per sector).
Risk Level
MEDIUM - due to its focus on high-quality, low-volatility stocks and international diversification. Key risk factors include:
Foreign Exchange Risk: Weakness in foreign currencies can negatively impact returns for U.S. investors.
International Market Risks: Political, economic, and regulatory uncertainties in developed and emerging markets.
Performance
Since its inception on April 29, 2021, SCHY’s performance has been modest but stable. As of mid-2025, the annualized return is approximately 4-6%.
Expense Ratio
SCHY’s expense ratio is 0.08%, making it one of the most cost-effective international dividend ETFs. This low fee, reduced from 0.14% previously, covers management, operational, and administrative costs.
This means that for every $1,000 invested, the annual cost would be $0.80.
Dividend Yield
SCHY offers a compelling dividend yield, paid quarterly. Typically ranges from 4% to 5%.
This means that if you invest $1,000 in this ETF, you can expect to receive approximately $40 to $50 in dividends over a year, assuming the yield remains constant.
Composition Methodology
The composition methodology of the Schwab International Dividend Equity ETF (SCHY) is based on tracking the Dow Jones International Dividend 100 Index. Below is a detailed explanation of the index's composition methodology:
Initial Screening: The starting place consists of identifying large- and mid-cap stocks from developed and emerging markets outside the United States, excluding real estate investment trusts (REITs).
Stocks must be part of the global ex-U.S. equity market, covering companies listed on major exchanges.
Companies must have a consistent record of paying dividends for at least 10 consecutive years, ensuring a focus on stable, dividend-paying firms.
Financial Metrics: Eligible stocks are ranked based on a composite score derived from four fundamental metrics:
Cash flow to total debt: Measures financial health and debt servicing ability.
Return on equity: Assesses profitability relative to shareholders’ equity.
Indicated dividend yield: Reflects the current dividend payout relative to stock price.
Five-year dividend growth rate: Evaluates the historical growth of dividend payments.
Ranking and Selection: The top 400 stocks based on this composite score advance to the next stage. From the top 400 stocks, the 100 least volatile stocks are selected based on historical price volatility. This step emphasizes lower-risk, stable companies to enhance risk-adjusted returns.
Weighting: The index uses a modified market-capitalization weighting scheme, where constituent weights are adjusted to reflect market cap but with specific caps to ensure diversification:
Individual stock cap: No single stock exceeds 4% of the index.
Sector cap: No sector exceeds 15% of the index.
Emerging markets cap: Exposure to emerging markets is limited to 15% of the index.
This methodology results in a portfolio of high-quality, high-dividend-yielding, low-volatility international stocks, emphasizing stability, income, and diversification.
The Schwab International Dividend Equity ETF (SCHY) conducts a quarterly rebalancing of its portfolio and an annual review of its index composition. This entails adjusting the ETF's weightings four times a year and performing a thorough review once a year, during which stocks may be replaced to maintain alignment with its investment criteria.
Similar Alternatives
Below is a summary of similar alternatives to the Schwab International Dividend Equity ETF (SCHY), focusing on ETFs that offer international dividend exposure, high yield, and similar investment characteristics. Below are some notable options:
Vanguard International High Dividend Yield ETF (VYMI): VYMI seeks to track the FTSE All-World ex-US High Dividend Yield Index, providing exposure to high-yielding companies in developed and emerging markets outside the U.S.
iShares International Select Dividend ETF (IDV): Tracks the Dow Jones EPAC Select Dividend Index, focusing on high-dividend-yielding companies in developed markets outside the U.S. (Europe, Pacific, Australasia, Canada).
SPDR S&P International Dividend ETF (DWX): Tracks the S&P International Dividend Opportunities Index, focusing on high-dividend-yielding stocks in developed and emerging markets outside the U.S.
Fidelity International High Dividend ETF (FIDI): Actively managed ETF focusing on high-dividend-yielding stocks in developed and emerging markets outside the U.S., aiming for income and capital appreciation.
This is a comparison of the SCHY ETF and similar alternatives, focusing on their Management Expense Ratios (MER), yields, and annualized performances.
Target Investors
Below is an analysis of the target investors for SCHY, considering its focus on high-quality, high-dividend-yielding, low-volatility international stocks, low expense ratio, and income-oriented approach:
Income-Focused Investors: Those seeking a steady stream of dividend income, such as retirees, pensioners, or those building portfolios for passive income.
Risk-Averse Investors Seeking International Exposure: Conservatives who want international diversification but prioritize stability over high growth.
Cost-Conscious Investors: Those prioritizing low fees to maximize long-term returns, such as those with long investment horizons or managing large portfolios.
Value-Oriented Investors: Those seeking undervalued international stocks with strong fundamentals and high dividend yields, often adhering to a value investing strategy.
Portfolio Diversifiers: Investors with U.S.-heavy portfolios seeking to diversify geographically to reduce country-specific risk.
Long-Term Investors: Those with a long-term horizon (5-10+ years) who can tolerate moderate currency and geopolitical risks for steady income and potential capital appreciation.
Investors Seeking Defensive Strategies: Those preparing for market downturns or economic uncertainty who prefer defensive assets.
Reasons to Invest in SCHY
High Dividend Yield: SCHY offers a dividend yield that is higher than many U.S.-based dividend ETFs and competitive with international peers. This makes it attractive for income-focused investors, such as retirees or those seeking passive income.
Low Expense Ratio: With a low management expense ratio (MER), SCHY is one of the most cost-efficient international dividend ETFs. The low cost appeals to cost-conscious investors and enhances net returns compared to higher-fee alternatives.
Defensive Investment Strategy: SCHY tracks the Dow Jones International Dividend 100 Index, selecting the 100 least volatile stocks from a pool of 400 high-quality, high-yield companies based on metrics like cash flow to debt, return on equity, and dividend growth. Its low beta indicates lower market volatility, making it a stable choice during economic uncertainty.
International Diversification: SCHY provides exposure to developed markets (e.g., UK, Japan, Australia) and emerging markets (capped at 15%), diversifying U.S.-heavy portfolios and reducing country-specific risk. This is valuable for investors seeking global exposure to mitigate U.S. market concentration.
Potential for Value Outperformance: International stocks, particularly value-oriented dividend payers, have been undervalued relative to U.S. markets in recent years. SCHY’s focus on quality value stocks positions it to benefit from potential mean reversion or a recovery in international markets.
Strong Management and Reputation: Managed by Charles Schwab, a reputable firm, SCHY benefits from experienced portfolio managers and a focus on investor-friendly strategies. The ETF’s transparent, passive approach aligns with long-term investor interests.
Reasons Not to Invest in SCHY
Currency Risk: As an international ETF, SCHY is exposed to foreign exchange risk. A stronger U.S. dollar, as seen in recent years, can reduce returns for U.S. investors, even if underlying stocks perform well. This volatility may deter risk-averse investors.
Modest Capital Appreciation: SCHY’s annualized performance since inception lags broader market ETFs, which have higher growth potential. Its focus on low-volatility, value-oriented stocks limits upside in bull markets.
Foreign Withholding Taxes: Dividends from international holdings are subject to foreign withholding taxes, which can reduce after-tax yields, especially in taxable accounts. While SCHY aims to minimize tax drag, this remains a concern for investors outside tax-deferred accounts.
Relatively Short Track Record: Launched in April 2021, SCHY has a limited performance history (~4 years), making it harder to assess its long-term consistency compared to some of its peers. This may concern investors seeking established ETFs.
Underperformance in Growth Markets: SCHY’s defensive strategy and focus on value stocks may lead to underperformance during periods of strong global growth, particularly when growth stocks or U.S. markets outperform international value stocks. Investors seeking higher returns in bullish markets may prefer broader or growth-focused ETFs.
Geopolitical and Regulatory Risks: International investments carry risks from political instability, regulatory changes, and economic challenges in foreign markets, particularly in emerging markets. These factors can impact SCHY’s performance and dividend stability.
Concentration in Defensive Sectors: While defensive sectors (e.g., consumer staples, healthcare) reduce volatility, they may limit growth potential compared to ETFs with balanced or cyclical sector exposure. Investors seeking exposure to dynamic sectors like technology or consumer discretionary may find SCHY’s allocation restrictive.
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Due to the annual shuffling, sector allocation may change.