SCHD: Strong Dividend Grower—Made Even Better With Writing Options

byTony Hicks -
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If you like your dividends steady, your fees low, and your sleep restful, the Schwab U.S. Dividend Equity ETF (ticker: SCHD) probably already sits on your watchlist—or in your portfolio. It’s a quality-tilted dividend strategy with a simple mandate: own U.S. companies with durable, growing payouts, and do it at a rock-bottom cost. In this long read, we’ll break down what makes SCHD such a dependable dividend grower, then show how writing options—covered calls and cash-secured puts—can turn a solid income engine into a more flexible, potentially higher-yielding machine. Along the way, we’ll cover the rules, the risks, taxes, and a practical playbook you can copy-paste into your own process.

Quick stats (as of August 2025): SCHD tracks the Dow Jones U.S. Dividend 100 Index, charges a 0.06% expense ratio, pays quarterly distributions, and has actively traded listed options—meaning you can run covered calls or the wheel strategy on it. S&P GlobalSchwab BrokerageStockAnalysisYahoo Finance

Why SCHD is a “strong dividend grower”

1) The index does the heavy lifting.
SCHD is rules-based. It tracks the Dow Jones U.S. Dividend 100 Index, which selects 100 U.S. stocks that have a record of consistently paying dividends and then applies quality screens—notably cash flow to debt, return on equity (ROE), five-year dividend growth, and indicated dividend yield. That combo tries to balance current income with sustainability and growth. S&P GlobalNasdaq

2) It’s designed to avoid yield traps.
Because the index emphasizes both quality and dividend growth, it aims to filter out companies whose dividends look tempting only because their share prices collapsed. Put differently: SCHD prefers income that stays paid. ETF Database

3) Fees are basically a rounding error.
At an expense ratio of 0.06%, SCHD is among the least expensive dividend ETFs. Low fees matter—especially for income investors who want more of the gross yield to show up net in their accounts. Schwab Brokerage

4) The portfolio is familiar—and diversified.
The top holdings typically include household-name, cash-rich firms across staples, healthcare, energy, and tech/communications. Recent lists show weights to names like PepsiCo, Altria, AbbVie, Chevron, and ConocoPhillips among the top slots, with the top-10 comprising roughly ~40% of assets—enough concentration to matter, not enough to dominate. (Holdings shuffle at the annual rebalance.) Seeking AlphaStockAnalysis

5) A straightforward, quarterly paycheck.
SCHD distributes quarterly and, as of mid-2025, sported a trailing yield in the ballpark of ~3.7% (it fluctuates with prices and portfolio changes). Ex-dividend dates in 2025 were March 26 and June 25, with the next expected in late September. StockAnalysisWall Street Horizon

6) Easier access to options after the split.
A 3-for-1 share split in October 2024 made round lots (100 shares) more attainable for covered-call writers and “wheel” practitioners. Options were adjusted accordingly, and SCHD continues to trade standard 100-share contracts post-split. Schwab BrokerageMIAX Global

Bottom line on the fund: SCHD is built to tilt toward durable dividend payers with attractive quality metrics, pass the savings of an ultra-low expense ratio to holders, and deliver a quarterly cash stream that tends to grow over time. That makes it an excellent base for an options overlay.

Why add options to a dividend ETF?

Dividends are great. But dividends + option premium can be better—if you understand the trade-offs.

  • Covered calls (own 100 shares and sell a call against them) can boost cash flow and modestly buffer modest drawdowns (the premium lowers your cost basis). The trade-off: you cap the upside above your strike, and you face early assignment risk around ex-div dates if the call is in-the-money with little extrinsic value left. InvestopediaFidelity

  • Cash-secured puts (set aside the cash to buy 100 shares and sell a put) can get you paid to wait for a better entry. If assigned, you effectively buy the dip at a discount net of premium; if not, you pocket the income and can try again. partnering.marinerwealthadvisors.com

  • The wheel alternates the two: sell a CSP until assigned → own shares → sell a covered call until called away → repeat. On a relatively lower-volatility, quality income ETF like SCHD—where implied volatility is often in the low-teens—the wheel can smooth results and create a monthly cash cadence without needing to forecast big directional moves. (As of Aug. 21, 2025, services showed SCHD’s IV around the low-teens—modest, but often still enough to matter.) OptionCharts

When does it shine? Sideways to gently up markets, or when you’re happy to limit some upside in exchange for repeatable income. When does it lag? Strong bull moves (you’ll likely be called away) or sudden volatility spikes (premiums help, but your shares drop too).

A practical, copy-ready playbook

Below is a step-by-step framework you can adapt. The settings are intentionally conservative; tweak to taste.

1) Start with your base position

  • Decide your core SCHD allocation absent options (e.g., 40% of your dividend sleeve).

  • Park it in a tax-advantaged account if you can (more on taxes below).

  • Keep at least one round lot (100 shares) free of calls if you want the flexibility to sell into rallies without covering an option.

Remember: because SCHD split 3-for-1 in Oct 2024, reaching that first 100-share lot is easier than it used to be, enabling smaller accounts to run covered calls earlier. Schwab Brokerage

2) Covered-call ladder (monthly cadence)

  • Target delta: ~0.20–0.30 (roughly 1–2 standard deviations out over a month), balancing income with room for upside.

  • Days-to-expiration (DTE): 30–45 is a sweet spot many income writers like for time-decay vs. flexibility.

  • Entry window: Write calls after ex-div dates to reduce early-assignment risk; roll/close before the next ex-div if your call drifts ITM with little extrinsic value left. FidelitySchwab Brokerage

Management rules:

  • If SCHD runs: Consider rolling up and out (close the short call, sell a higher strike further out) to regain upside room.

  • If SCHD chops or dips: Let the call decay. If you can buy-to-close (BTC) at 65–80% max profit earlier than expected, take it and reset.

  • Avoid tight expirations (≤14 DTE) around ex-div weeks; early exercise becomes rational when dividend value exceeds the option’s time value. Investopedia

3) Cash-secured puts for entries (the “get paid to bid”)

  • Target delta: ~0.20–0.25; pick a strike where you’d be happy to own.

  • DTE: 30–45 again balances premium and responsiveness.

  • Stagger puts: one every 2–3 weeks to avoid “all at once” assignment.

  • If assigned: Your cost basis = strike – premium received. Immediately transition to covered-call mode.

Note: Around ex-div dates, put owners have less incentive to early exercise (a short put exercised early risks the dividend outlay for the new short stock), which marginally reduces early-exercise dynamics on the put side. Options Playbook

4) The Wheel—tying it together

  • Phase A: Sell CSPs until assigned at a price you like.

  • Phase B: Once long 100 shares, sell covered calls.

  • Phase C: If called away, bank gains and loop back to Phase A.

This creates a monthly income rhythm on top of SCHD’s quarterly dividends, with the wheel’s premium helping smooth total returns through range-bound markets.

Numbers that make sense (without over-optimizing)

Because premiums change daily with price and volatility, think in ratios, not dollars:

  • Income rate: A 30–45 DTE call with ~0.25 delta on a low-teens IV ETF often yields roughly 0.7%–1.2% of notional per month in calmer regimes, more in choppier ones. (That’s directional, not a guarantee.) Many investors aim to convert that to ~4–8% annualized option income on top of ~3–4% dividends, with the understanding that called-away upside is the bill you pay for consistency. (Implied vol snapshot for SCHD has recently hovered in the low-teens, which supports modest—but meaningful—premiums.) OptionCharts

  • Drawdown buffer: Premium lowers cost basis a bit each cycle. In flat/down months, that cushion improves your relative outcome vs. buy-and-hold.

  • Opportunity cost: In strong rallies (say, after a positive rebalance or macro surprise), you’ll likely underperform buy-and-hold due to the cap.

Tip: For a growth-tilted sleeve, don’t overlay calls on all shares. Keep some SCHD uncovered so you still participate fully when markets melt up.

Understanding the calendar: dividends & options

SCHD’s quarterly ex-dividend rhythm matters for options writers:

  • Q1 2025 ex-div: March 26

  • Q2 2025 ex-div: June 25

  • Next expected: late September 2025 (historically late-Sept) Wall Street Horizon

Best practices around ex-div:

  • Avoid selling covered calls that expire within a day or two after ex-div if they’re likely to be ITM with minimal extrinsic value—early assignment becomes rational for call holders seeking the dividend. Consider rolling earlier or choosing higher strikes with more time value. Fidelity

  • Conversely, CSP dynamics are different; dividends disincentivize early exercise of puts, modestly reducing assignment quirks on that side. Options Playbook

Liquidity check: can you actually trade SCHD options?

Yes. SCHD has listed options with multiple expiries. Liquidity isn’t SPY-level, but major platforms publish active chains, greeks, and IV ranks. Expect tighter spreads near-term at popular strikes and wider on deep OTM/long-dated contracts. Always use limit orders. Yahoo FinanceBarchart.comMarketChameleon.com

Taxes & account placement (don’t skip this)

Covered calls and CSPs on SCHD are equity options, not broad index options. That means no automatic 60/40 “Section 1256” tax break. Premiums are typically short-term capital gains; “qualified covered call” rules matter for whether the underlying remains qualified for lower dividend tax rates (straddle rules can bite unqualified calls). In practice, many investors prefer to run these overlays inside IRAs/retirement accounts when permitted, which sidesteps annual tax drag. Always check your situation with a professional, but here are the key references: Cboe Global Marketsaifundservices.comFidelitySchwab Brokerage

  • Equity/ETF options ≠ 1256 contracts (no built-in 60/40). aifundservices.com

  • Covered call gains generally taxed as capital gains; qualified-covered-call (QCC) status determines straddle treatment and dividend qualification. FidelitySchwab Brokerage

  • Index options (not SCHD) may enjoy 60/40. Cboe Global Markets

If you do this in taxable accounts, keep meticulous records. If you’re aiming for tax efficiency first, emphasize overlays in tax-advantaged accounts (if your broker allows options in IRAs).

Risk map & guardrails

1) Assignment & lost upside
Covered calls cap your gains above the strike. In big up moves (e.g., a factor rotation into value/dividends), you’ll watch SCHD run without you—unless you roll proactively. Be explicit: What annualized yield are you targeting from options, and how much upside are you willing to sell to get it?

2) Early exercise around ex-div
This is a real risk when calls are ITM and time value is thin relative to the dividend. If preserving the dividend is your priority, close or roll before the decision window. Fidelity

3) Liquidity & slippage
Spreads can widen off-the-run. Stick to liquid expiries/strikes, consider GTC limits, and avoid “market” orders.

4) Volatility regime shifts
When IV collapses, income shrinks. When IV spikes, you’ll collect more premium—but shares may fall faster. Don’t confuse premium size with total-return safety.

5) Concentration & overlap
SCHD’s factor tilts (quality/yield) can overlap with other dividend funds you own (e.g., VYM, HDV, DGRO, SDY, VIG). Know what role each sleeve plays. (Recent roundups continue to list SCHD among the leading dividend growth/high-yield ETFs due to its quality screens and low fee.) Kiplinger+1

6) Strategy drift
If you find yourself rolling forever to avoid being called away, you’ve turned an income overlay into a market-timing exercise. Decide upfront: Are you OK being called away at your strike? If not, pick higher deltas more sparingly or run fewer covered calls (e.g., 1 call per 200–300 shares).

A sample one-year overlay plan

Goal: Add 4–7% in option premium over a year without sacrificing SCHD’s core dividend growth thesis.

  1. Core holding: Own your target SCHD allocation. Keep at least 100–200 shares uncovered for flexibility.

  2. Monthly CSP cadence (if you’re still building):

    • Every 3–4 weeks, sell a 30–45 DTE put at ~0.20–0.25 delta.

    • If assigned, your net basis typically improves by the premium; if not, you bank yield and try again.

  3. Monthly covered call cadence (on shares):

    • Right after each ex-div date, sell 30–45 DTE calls at ~0.20–0.30 delta.

    • If price rips, roll up/out to keep room for gains; if it drifts, BTC at 65–80% of max profit and reset.

  4. Ex-div guardrail:

    • 10–5 trading days before the next expected ex-div, evaluate outstanding calls: close or roll if ITM with thin extrinsic value to avoid early assignment and preserve the dividend. Fidelity

  5. Quarterly review & rebalance:

    • Revisit how much upside you’ve sold vs. your total return goals.

    • Compare realized option yield vs. expectations; adjust delta/DTE accordingly.

How SCHD’s design helps the overlay

Quality screens + diversified constituents mean you’re writing options on a broad, resilient base rather than a handful of unstable, high-yield names. That’s friendly to the wheel because:

  • Vol is moderate (premiums won’t be huge, but they’re steadier). OptionCharts

  • Dividends are predictable (you can plan around ex-dates). Wall Street Horizon

  • Fees are tiny, so option income isn’t chewed up by fund costs. Schwab Brokerage

And because SCHD’s index refreshes annually, the fund tends to shed weakening dividend stories and add strengthening ones—keeping the base on which you write options aligned with the strategy you signed up for. S&P Global

A quick comparative note

Investors often compare SCHD to VIG, DGRO, HDV, or SDY. Without turning this into a cage match, the high-level distinctions are:

  • SCHD: composite of yield and growth with quality filters; higher yield than classic “Dividend Aristocrat” growth funds; 0.06% fee. Schwab Brokerage

  • VIG / DGRO: stronger dividend-growth purity (longer/clearer streak requirements) but typically lower yields.

  • HDV / SDY: higher yield or different weighting schemes; differing sector tilts.

Recent roundups keep SCHD on the short list for investors wanting both a respectable yield and growing payouts at low cost—which is precisely the profile that pairs nicely with a measured options overlay. Kiplinger

Don’t forget the basics (really)

  • Position size what you can comfortably own if a put assigns—because assignment happens.

  • Use limits; don’t donate edge via market orders on wide spreads.

  • Know your broker’s rules for options in IRAs.

  • Keep a calendar of ex-div dates and expirations.

  • Log outcomes (net P/L, assignment/roll frequency); adjust deltas/DTE based on real, not imagined, results.

The bottom line

SCHD already checks the right boxes for dividend investors: quality bias, growing payouts, broad diversification, and a minuscule fee. Layering on covered calls and cash-secured puts can turn that steady quarterly paycheck into a more customized income stream—smoothing returns in sideways markets, paying you to buy on dips, and nudging your total yield higher over a full cycle.

It’s not magic. You’ll trade some upside for more cash flow, and you’ll need to manage assignment risk, liquidity, and tax treatment thoughtfully. But if your objective is repeatable income from a quality-tilted dividend core, then SCHD + options is a pragmatic, rules-friendly way to make a good thing even better.

Sources & references

This article is educational and not investment, tax, or legal advice. Options involve risk and aren’t suitable for every investor. Review your broker’s options disclosure and consult a professional about your specific situation.

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