The Schwab US Dividend Equity ETF, or SCHD, is basically the holy grail for income investors. It’s consistent. It’s cheap. It tracks the Dow Jones U.S. Dividend 100 Index like a bloodhound. But here’s the thing—every dog has its day, and lately, SCHD has had some pretty quiet ones compared to the high-flying tech world.
Investors are getting itchy.
They see the 11% or 12% yields on covered call funds and start wondering if they’re leaving money on the table by sticking with a "boring" dividend growth fund. If you’re looking for an SCHD ETF alternative strategy, you’ve gotta understand that you aren't just looking for a new ticker symbol. You’re looking for a different way to balance capital appreciation with cold, hard cash flow.
Honestly, most people switch strategies at the exact wrong time. They dump SCHD when value is out of favor and buy into "yield traps" just before a correction. Let’s talk about how to actually pivot without blowing up your brokerage account.
The Problem with Just Buying "The Next SCHD"
Most people think an alternative is just buying VIG (Vanguard Dividend Appreciation ETF) or DGRO (iShares Core Dividend Growth ETF). Sure, those are great funds. VIG focuses on dividend achievers—companies that have hiked payouts for 10+ years. DGRO looks at sustainable payout ratios.
But swapping SCHD for DGRO isn't really a "strategy" shift. It’s just changing the flavor of your vanilla ice cream.
A real SCHD ETF alternative strategy requires looking at the mechanics of how you get paid. SCHD relies on the fundamental health of companies like Home Depot, PepsiCo, and Chevron. When those stocks stall, the fund stalls. If you want more juice, you have to look at different "buckets" of income generation.
The Barbell Approach: Growth and Yield
One legitimate alternative isn't a single fund, but a 50/50 split between a low-yield, high-growth fund and a high-yield derivative fund. Think of it like a barbell. On one side, you put something like QQQM (the cheaper version of the Nasdaq 100). On the other side, you put a "yield max" or covered call ETF like JEPI or DIVO.
Why does this work?
Because SCHD is a hybrid. It tries to do both. By splitting them, you get the pure octane of tech growth and the immediate cash flow of option premiums. You’re essentially building your own synthetic SCHD that might actually outperform in a flat market.
The Quality Factor: Why MOAT and COWZ Matter
If you’re tired of the specific screening criteria SCHD uses—like that heavy emphasis on cash flow to debt—you might want to look at "Quality" as a factor.
COWZ (Pacer US Cash Cows 100 ETF) is a beast. It doesn't care about dividends as much as it cares about Free Cash Flow Yield. It hunts for companies that are literally swimming in cash. In many years, COWZ has absolutely embarrassed the broader dividend market because companies with massive free cash flow eventually do something smart with it—buybacks, debt reduction, or massive dividend hikes.
Then there’s MOAT (VanEck Morningstar Wide Moat ETF).
It’s different.
It follows Morningstar’s research to find companies with "sustainable competitive advantages" trading at a discount. It doesn't target dividends, but it targets the type of companies that eventually become dividend legends.
When Covered Calls Become the SCHD ETF Alternative Strategy
We have to talk about JEPI (JPMorgan Equity Premium Income ETF). It’s the elephant in the room.
A lot of investors treat JEPI as a direct replacement for SCHD. That’s a mistake. JEPI isn't buying companies because they grow dividends; it’s selling out-of-the-money S&P 500 index options to generate "coupons."
If you want a strategy that thrives when the market is "sideways"—meaning stocks aren't really going up or down—covered call funds are your best friend. But in a raging bull market? SCHD will likely leave JEPI in the dust because JEPI caps your upside.
Real talk: If you’re under 40, JEPI probably shouldn't be your primary SCHD ETF alternative strategy. You need the compounding growth of the underlying shares, not just the monthly check.
The "Dividend Plus" Model
Some savvy investors are moving toward DIVO (Amplify CWP Enhanced Dividend Income ETF).
It’s a bit of a middle ground.
The managers pick 20 to 25 high-quality dividend stocks (similar to SCHD’s vibe) but then selectively write covered calls on individual names when the volatility is high.
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It’s tactical. It’s active. It feels more "human" than a rigid index.
The Hidden Risk of "Yield Chasing"
Let’s be real for a second. The reason you’re looking for an alternative is probably because SCHD’s 3.4% yield feels tiny when inflation is biting. You see a 10% yield elsewhere and your eyes light up.
But look at the "Total Return."
If a fund pays you 10% but the share price drops 8%, you only made 2%. And you owe taxes on that 10% (unless it’s in a Roth IRA). That’s a tax nightmare. SCHD is incredibly tax-efficient because most of its distributions are "qualified dividends," which are taxed at a lower rate. Many high-yield alternatives pay out "ordinary income," which gets taxed at the same rate as your paycheck.
Do the math before you switch. A 3.5% qualified yield is often worth more than a 5% ordinary yield after the IRS takes its cut.
How to Build the Strategy Today
If you're ready to move beyond a single-ticker portfolio, here is how you actually execute an SCHD ETF alternative strategy without losing your shirt.
First, stop looking for a "perfect" fund. It doesn't exist. Instead, look at your "Yield on Cost."
If you’ve held SCHD for five years, your personal yield is probably way higher than the 3.4% listed on Yahoo Finance because the dividends have grown while your entry price stayed the same. Throwing that away to buy a new fund means starting your dividend growth clock back at zero.
Step 1: Diversify the Screening Logic
If you keep SCHD, maybe add a "Value" tilt that SCHD misses. SCHD is heavy on Finance and Industrials. It’s light on REITs (it actually excludes them entirely). An alternative strategy should involve adding something like O (Realty Income) or VICI (VICI Properties) to get that real estate exposure that SCHD lacks.
Step 2: The Core-Satellite Setup
Keep 60% in a broad market fund (VOO or VTI).
Use the remaining 40% to rotate between SCHD, COWZ, and maybe a splash of AVUV (Avantis U.S. Small Cap Value).
Small-cap value has historically outperformed large-cap dividend stocks over very long periods, but it’s volatile as hell. By mixing it with the stability of SCHD, you create a "Value" powerhouse that covers the entire market spectrum, not just the big guys.
Step 3: Check the Payout Ratio
Any fund you pick as an alternative must be vetted for sustainability. Check the holdings. If the top 10 companies are paying out more than 75% of their earnings as dividends, they don't have room to grow. They’re "mature," which is a polite way of saying "stagnant."
Actionable Insights for the Modern Income Investor
Switching strategies shouldn't be an emotional reaction to a bad quarter. If you're serious about finding an SCHD ETF alternative strategy, focus on these three pivots:
- Total Return over Current Yield: Always check the 5-year and 10-year charts including reinvested dividends. If the line goes from top-left to bottom-right, stay away, no matter how high the dividend is.
- The "Tax Drag" Audit: If you are investing in a taxable brokerage account, prioritize funds with "Qualified" dividends. If you’re in a 401k or IRA, that’s where you put the high-yield, covered-call, or REIT alternatives.
- Factor Diversification: Don't just buy "Dividend" funds. Mix in "Quality" (COWZ), "Moat" (MOAT), and "Low Volatility" (SPLV) to ensure that when one sector of the economy hits a wall, your entire income stream doesn't dry up.
The best alternative to SCHD isn't another fund—it's a diversified system that recognizes that dividend growth is just one piece of the puzzle. Start by carving out 10% of your portfolio for a "test" strategy like the COWZ/QQQM barbell. Watch it for six months. See how it handles a red day. Only then should you consider a full-scale migration of your capital.
Maintaining a long-term perspective is the only way to win. The market is designed to shake you out of good positions. Don't let a few months of underperformance trick you into abandoning a solid dividend-growth foundation for a flashy, high-fee alternative that won't be around in a decade. Keep your costs low, your diversification high, and your focus on the cash flow that actually hits your bank account.