DIVO Outperforms SCHD Despite Covered Call Strategy

DIVO, a covered call ETF, outperforms SCHD in recent months. The article highlights the performance of both ETFs and notes that the discussion in the comments on the previous article was high-quality and focused on the merits of income and total return investing.

In recent months, the Divo ETF (NYSEARCA:DVO) has shown notable performance, outperforming the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). This comparison has sparked a robust discussion among investors, highlighting the merits of income and total return investing.

The Schwab U.S. Dividend Equity ETF (SCHD) has long been a favorite among dividend investors due to its low cost, high diversification, and solid yield. As of June 2025, SCHD offers a yield of approximately 3.9%, with a 10-year annual dividend growth rate of around 11.8% [2]. Despite its steady performance, some investors have been drawn to the higher yields offered by the Divo ETF.

The Divo ETF is a covered call ETF that focuses on large-cap U.S. stocks. It uses a covered call strategy to generate high monthly income distributions. The ETF's yield is significantly higher than SCHD, currently around 12.11% [2]. This high yield is achieved by selling call options on the underlying stocks, which can cap upside potential but generate substantial income.

The performance of both ETFs has been closely scrutinized by investors. While SCHD has provided steady growth and income over the long term, the Divo ETF has shown more volatility but also higher yields. In recent months, Divo has outperformed SCHD, demonstrating the potential benefits of a covered call strategy.

However, the high yields of the Divo ETF come with risks. The ETF's strategy involves selling call options, which can limit gains in bull markets. Additionally, the high yields include a return of capital (ROC), which can erode net asset value (NAV) over time, especially in down markets [2]. This risk is particularly significant over a nine-year horizon, as market volatility could reduce principal.

Investors considering a switch from SCHD to Divo should weigh the potential benefits of higher income against the risks of volatility and NAV erosion. A hybrid approach, where a portion of the portfolio is allocated to Divo while the remainder remains in SCHD, could provide a balance between income and growth.

In conclusion, the performance of the Divo ETF relative to SCHD highlights the importance of considering both income and total return when selecting dividend-focused ETFs. While Divo offers higher yields, it also introduces additional risks that investors must carefully consider. A diversified approach that combines the stability of SCHD with the income potential of Divo may be the best strategy for many investors.

References:
[1] https://www.aol.com/why-m-considering-schd-etf-144215641.html
[2] https://247wallst.com/personal-finance/2025/06/09/should-i-convert-my-300k-schd-into-spyi-and-qqqi-for-higher-yields-before-retirement/