The Schwab Dividend Equity Fund aims to provide the benefits of dividend-paying stocks–a source of steady income or a cushion against the market's downturns–as well as capital appreciation.
The Fund seeks current income and capital appreciation through a higher dividend yield than that of the S&P 500® Index1 but with a lower risk profile. Designed and managed to take advantage of current tax law under which qualified dividend income is taxed at a maximum rate of 15%, the Fund generally invests at least 80% of its net assets in dividend-paying common and preferred stocks. It may also purchase other equity investments, including convertible securities and futures.
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Distinguishing Characteristics and Benefits
Driven by Schwab Equity Ratings®
The Fund uses Schwab Equity Ratings to aid its stock selection, which represents Schwab's point of view on the 12-month performance outlook for approximately 3,000 of the largest U.S.-headquartered stocks (by market capitalization) using a scale of A through F. It employs a disciplined methodology that evaluates each stock on the basis of investment criteria from four broad categories: fundamentals, valuation, momentum and risk.
Growth and Income from Large- and Mid-Caps
The Fund's management team seeks to achieve both income and growth by narrowing an initial universe of stocks–about 1,500 dividend-paying equities from large- to mid-cap U.S. companies–to about 100 names that have been rated A or B by Schwab Equity Ratings. The managers then construct and maintain a portfolio that seeks to provide a dividend yield that exceeds that of the S&P 500 Index with lower volatility.
Investment Management Process
The portfolio management team employs a multifactor approach to finding what it believes is the right blend of risk and reward, not only within each individual stock but also with regard to how such stocks fit together to satisfy the investment style and risk profile of the Fund. As such, Schwab Equity Ratings is just one component of stock evaluation; other essential factors also constitute the basis for portfolio construction and optimization. As an actively managed fund, the Schwab Dividend Equity Fund's allocations across sectors and specific holdings will often vary from its benchmark, seeking to capitalize from selected over- and underweightings based on market and economic considerations.