SCHD ETF stock nears its death cross amid rotation to Treasuries

The Schwab US Dividend ETF (SCHD) stock price has dived in the past few weeks as investors rotate from stocks to cash and Treasuries. The fund was trading at $70.88, which was the lowest point since October last year. It has dropped by about 10% below its highest point this year. 

Dividend stocks competing with cash

The SCHD ETF is one of the biggest funds focused on dividend companies in the US. It competes with the likes of the iShares Select Dividend ETF (DVY) and Vanguard High Dividend Yield ETF (VYM). It has over $44 billion in assets with its top constituent companies being Broadcom, Cisco, Texas Instruments, and Verizon. 

The Schwab US Dividend has a dividend yield of 3.56%, which is higher than the peers mentioned above. This yield is still substantially lower than the headline American inflation, which stands at above 6%. It is also lower than what government bonds are yielding. 

Treasury yields dropped sharply on Monday as investors predicted that the Federal Reserve will slow its rate hikes this month. As I wrote in this article, analysts at Goldman Sachs believe that the Fed will hike by just 0.25% this month or avoid hiking after all. 

Still, Treasury bonds have a higher yield than the SCHD ETF. Data compiled by Investing shows that the 1-month note has a yield of 4.6% while the 6-month is yielding at 4.7%. The 2-year and 10-year bond yields stand at 4.13% and 3.57%, respectively. These yields have dropped sharply this week considering that the 2-year was yielding at 5% on Friday last week. 

Therefore, some income investors are clearly rotating from dividend stocks to bonds and cash. In a note to WSJ, an analyst said:

“There is no need whatsoever to buy a risky company just because it’s in the same ZIP Code as cash.”

However, there is a point where investing in the SCHD ETF makes more sense than holding cash. For one, it is unclear how long the short-term Treasuries will continue doing better than the fund. With the financial sector imploding, it means that the Fed could start changing its tune and even slash rates later this year. 

Further, the SCHD ETF offers a higher dividend growth than its peers. Its 3-year CAGR was 14.10% compared to DVY and VYM’s 4.77% and 4.59%. As shown below, its dividend ratings are relatively solid as well. 

SCHD ETF technical analysis 

SCHD chart by TradingView

In my last article on the Schwab US Dividend Equity ETF, I argued that while it was a good fund to invest in, its technicals were extremely worrying. This forecast was accurate as the fund has retreated by ~8% since then. It has also moved slightly below the key support level at $73.98, the neckline of the triple top pattern. 

The SCHD ETF is also about to form a death cross, which forms when the 50-day and 200-day moving averages make a crossover. Therefore, there is a likelihood that the fund will continue falling as sellers target the next key support at $65.