APLY vs. SCHD: Apple’s Mega Yield ETF or Dividend Aristocrat Power

Exchange-traded funds have become a go-to for investors today. The low risk, diversification, and steady income make it an attractive option for those who do not want to research stocks. In uncertain markets like today, exchange-traded funds (ETFs) have become a part of several portfolios. If you are a passive income investor, you might want to consider dividend ETFs but how do you choose between them? Is it the yield? Or the portfolio?

For passive income, you need to look for an ETF that has paid dividends steadily, quarter after quarter. We look into two ETFs that are the talk of the town today- YieldMax AAPL Option Income Strategy ETF (NYSEARCA:APLY) and Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). 

Key Points in This Article:

• APLY’s current annual yield of 62.26% comes with some caveats. 
• SCHD yield is dramatically lower, but the ETF focuses on dividend growth and share appreciation. 
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APLY: Ridiculous Yield 

Not many people are aware of an ETF that offers a unique way to own a hot tech stock. Several people own Apple (NASDAQ:AAPL) stock because of its strong business, global presence, and dividend yield of 0.52%. But there’s a way you can indirectly invest in the company and enjoy a significantly higher yield. YieldMax AAPL Option Income Strategy ETF has attracted investor attention for its impressive yield. 

One thing to keep in mind is that the ETF does not directly invest in AAPL stock and investors will not receive any dividends paid by Apple. However, APLY has a much higher yield than Apple. The fund has an expense ratio of 1.06% and an annual yield of 62.26%.

The YieldMax AAPL Option Income Strategy ETF holds several U.S. Treasury bonds and since these bonds offer a strong yield, they are a major source of the ETF’s steady yield. The ETF deploys an options trading strategy, so instead of buying and holding Apple stocks, the fund buys Apple call options and then sells Apple put options.  Such buy-sell pairs allow it to gain income and pay monthly cash distributions. 

While APLY pays a very high dividend, it is not guaranteed. It comes with several risks investors must be aware of. This is why a stock could rise sharply but the ETF will only capture a part of its gains. Such gains are typical with covered call strategies, they have a capped upside so despite the underlying stock going up, the income opportunity will be limited. There’s always a risk that the annual yield of APLY could be reduced in the future.

This ETF is suitable for investors who can tolerate risk and understand the potential issues. 

SCHD: Steady, Reliable Income 

The Schwab U.S. Dividend Equity ETF tracks the total return of the Dow Jones Dividend 100 Index. It has 103 dividend stocks and isn’t a tech-heavy fund. SCHD offers ultimate portfolio diversification by investing in multiple sectors. The fund invests in mature companies that have a record of paying steady dividends. It generated a 12.24% annualized return in five years and a 10.56% annualized return in 10 years. 

While it doesn’t offer the extraordinary yield that APLY does, it does offer steady income at low-risk. This is because of its stock holdings. When you hold over 100 stocks, there’s low risk and when these stocks are industry stalwarts, you have little to worry about. The ETF has an expense ratio of 0.06% which means you only pay a $0.60 annual fee for an investment of $1,000. 

The fund has a dividend yield of 3.97% and pays quarterly. You can reinvest these dividends to keep growing your income. Since the ETF owns strong dividend companies, there’s little chance of a drop in yield even in times of market volatility. SCHD is a reliable ETF that offers predictable income and has generated steady returns in the past. 

The fund’s holdings are allocated across the following sectors:

• Energy: 21.08%
• Consumer Staples: 19.06%
• Healthcare: 15.68%
• Industrials: 12.45%
• Financials: 8.36%

It is top-heavy, the top 10 stocks make up 41% of the total portfolio. These include Coca-Cola (NYSE:KO), Home Depot (NYSE:HD), Chevron (NYSE:CVX), Verizon Communications (NYSE:VZ) and Lockheed Martin (NYSE:LMT). The ETF focuses on dividends rebalances the portfolio with the best dividend companies each quarter. 

APLY or SCHD?

While both the funds generate income for you, Schwab’s U.S. Dividend Equity ETF is a highly reliable, low-risk investment to consider. Investing in APLY comes with several risks and if you are a passive income investor, it isn’t worth taking on the risks. In the end, it all depends on your personal goals and preferences. You could choose to hold a small percentage of APLY and make a larger investment in SCHD or you could opt for a low-risk, low-cost ETF to enjoy reliable income for the long-term. 

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