Key Points

• SCHD and GCOW focus on higher-yielding dividend stocks.

• The ETFs have different strategies for selecting those stocks.

• They also have different fees and return profiles.

Many exchange-traded funds (ETFs) focus on holding dividend-paying stocks. While that gives income-seeking investors lots of options, it can make it difficult to know which is the best one to buy.

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) and Pacer Global Cash Cows Dividend ETF (NYSEMKT: GCOW) are two notable dividend ETFs. Here's a look at which is the better one to buy for those seeking to generate passive income.

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Different strategies for selecting high-yielding dividend stocks

The Schwab U.S. Dividend Equity ETF and the Pacer Global Cash Cows Dividend ETF aim to provide their investors with above-average dividend income by holding higher-yielding dividend stocks. The ETFs each hold roughly 100 dividend stocks. However, they use different strategies to select their holdings.

The Schwab U.S. Dividend Equity ETF aims to track the returns of the Dow Jones U.S. Dividend 100 Index. That index screens U.S. dividend stocks based on four quality characteristics:

• Cash flow to debt.
• Return on equity (ROE).
• Indicated dividend yield.
• Five-year dividend growth rate.

The index selects companies that have stronger financial profiles than their peers. That should enable them to deliver sustainable and growing dividends, and the Schwab U.S. Dividend ETF accordingly provides investors with a higher-yielding current dividend that should grow at an above-average rate. At its annual reconstitution, its 100 holdings had an average dividend yield of 3.8% and a five-year dividend growth rate of 8.4%.

The Pacer Global Cash Cows Dividend ETF uses a different strategy for selecting its 100 high-yielding dividend stocks. It starts by screening the 1,000 stocks in the FTSE Developed Large-Cap Index for the 300 companies with the highest free cash flow yield over the past 12 months. It screens those stocks for the 100 highest dividend yields. It then weights those 100 companies in the fund from highest yield to lowest, capping its top holding at 2%. At its last rebalance, which it does twice a year, its 100 holdings had an average free cash flow yield of 6.3% and a dividend yield of 5%.

Here's a look at how the top holdings of these ETFs currently compare:

Data sources: Schwab and Pacer.

Given their different strategies for selecting dividend stocks, the funds have very different holdings. SCHD holds only companies with headquarters in the U.S., while GCOW takes a global approach. U.S. stocks make up less than 25% of its holdings. Meanwhile, SCHD weights its holdings based on their dividend quality, while GCOW weights them based on dividend yield. Given its focus on yield, GCOW offers investors a higher current income yield at 4.2%, compared with 3.9% for SCHD.

Costs and returns

While SCHD and GCOW focus on higher-yielding dividend stocks, their strategies in selecting holdings have a major impact beyond the current dividend income. Because SCHD is a passively managed ETF while GCOW is an actively managed fund, SCHD has a much lower ETF expense ratio than GCOW. SCHD's is just 0.06%, compared with GCOW's 0.6%. Put another way, every $10,000 invested would incur $60 in management fees each year if invested in GCOW, compared with only $6 in SCHD.

GCOW's higher fee really eats into the income the fund generates, which affects its returns over the long term. The fund's current holdings actually have a 4.7% dividend yield, whereas the fund's latest payout had only a 4.2% implied yield.

Data sources: Pacer and Schwab. Note: GCOW's inception date is 2/22/16, while SCHD's is 10/20/11.

GCOW has outperformed SCHD over the past five years. However, SCHD has delivered better performance over the longer term. That's due to its lower costs and focus on companies that grow their dividends, which tend to produce the highest total returns over the long term.

SCHD is a better ETF for passive income

SCHD and GCOW hold higher-yielding dividend stocks, making either ETF ideal for those seeking passive income. However, SCHD stands out as the better one to buy because of its focus on dividend sustainability and growth. It also has a much lower ETF expense ratio. So it should provide investors with an attractive and growing stream of passive dividend income.

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Matt DiLallo has positions in Chevron, Coca-Cola, ConocoPhillips, Gilead Sciences, Schwab U.S. Dividend Equity ETF, and Verizon Communications. The Motley Fool has positions in and recommends Amgen, Chevron, Cisco Systems, Gilead Sciences, and Texas Instruments. The Motley Fool recommends BP, British American Tobacco, Equinor Asa, Lockheed Martin, Nestlé, Philip Morris International, and Verizon Communications and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

Investors looking to cash in on the fast-growing market for weight management medicines will naturally turn to the two leaders in this area, Eli Lilly and Novo Nordisk. However, several other companies seem to have somewhat promising prospects in this field. This group includes Amgen (NASDAQ: AMGN) and Viking Therapeutics (NASDAQ: VKTX), two drugmakers that have produced phase 2 clinical trial data for their leading weight management candidates.

Despite these positive clinical developments, Amgen and Viking Therapeutics have performed poorly on the stock market in the past 12 months, though progress in this area might eventually help them bounce back. But which of these two biotechs should investors trying to profit from the rapid spending on anti-obesity medicines put their money in?

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The case for Amgen

Amgen's leading weight loss candidate is called MariTide. In November, the biotech reported that in a phase 2 study, the medicine led to an average weight loss of about 20% in overweight or obese patients after 52 weeks, with no weight loss plateau observed. Importantly, MariTide is administered subcutaneously once a month -- the current weight management leaders are taken once weekly. A less frequent dosing could appeal to many patients.

The market expected greater weight loss in this study. That's why Amgen's shares fell after it released its phase 2 results. However, the company's data still makes it somewhat likely that it will go on to carve out a solid niche in the rapidly growing weight loss area, although it won't dethrone the leaders.

Further, Amgen's prospects go well beyond its work in the anti-obesity market. The company's deep lineup allows it to generate consistent revenue and profits. In the first quarter, Amgen's sales increased by 9% year over year to $8.1 billion, while its adjusted earnings per share came in at $4.90, 24% higher than the year-ago period. Amgen has several growth drivers. Tezspire, an asthma medicine, is performing well, as is Prolia, a treatment for osteoporosis (a bone disease) in postmenopausal women.

Amgen also has a deep pipeline of investigational products besides MariTide that will eventually lead to brand-new medicines. Lastly, it is an excellent dividend stock. It offers a forward yield of 3.5% -- compared to the S&P 500 index's average of 1.3% -- and has increased its payouts by 201.3% in the past 10 years. Amgen could generate strong returns over the long run even if MariTide doesn't pan out.

The case for Viking Therapeutics

Viking Therapeutics is a clinical-stage biotech. The company's VK2735, its weight management candidate, looks promising. Last year, it reported that at the highest dose, the drug led to a placebo-adjusted mean weight loss of 13.1% (or 14.7% from baseline) after a mere 13 weeks. VK2735 is in the same class of drugs as Eli Lilly's Zepbound. It mimics the action of two gut hormones: GLP-1 and GIP. That doesn't guarantee that it will achieve the same kind of success, but so far, the data looks highly encouraging.

Viking Therapeutics has other candidates. The company's VK2809 targets metabolic dysfunction-associated steatohepatitis. It delivered solid phase 2 results last year. Viking Therapeutics is also developing an oral formulation of VK2735 that is currently in mid-stage studies, while VK0214 is an investigational treatment for a rare, nervous system disorder called X-linked adrenoleukodystrophy.

There is no approved treatment for the disease yet. Viking Therapeutics carries above-average risk, as do all biotech companies without a single product on the market. But if VK2735 aces phase 3 results and earns approval -- and Viking's other candidates pan out as well -- the stock could deliver substantial returns.

The verdict

Amgen is a well-established company that generates consistent financial results. It also pays a dividend. It is a far better option for low-risk, income-seeking investors. There is no contest there. However, Viking Therapeutics has far more upside potential. If the smaller biotech can deliver solid pipeline and regulatory progress in the next few years, its shares will likely skyrocket. Note that the company also has significant potential drawbacks. It could be more appealing for investors with a higher tolerance for volatility.

Should you invest $1,000 in Amgen right now?

Before you buy stock in Amgen, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amgen wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $644,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $807,814!*

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Prosper Junior Bakiny has positions in Eli Lilly, Novo Nordisk, and Viking Therapeutics. The Motley Fool has positions in and recommends Amgen. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.

Some research has shown that dividend-paying stocks significantly outperformed their non-dividend-paying peers over the past few decades, and that the lion's share of market returns can be attributed to reinvested dividends and compounding. Those are excellent arguments for investing in dividend stocks and holding on to them for a long time.

However, not all dividend-paying companies are equally attractive. Which ones should you consider? Two excellent options right now are Amgen (NASDAQ: AMGN) and Microsoft (NASDAQ: MSFT). Here's why these two income stocks are worth sticking with for good.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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1. Amgen

It's never a bad idea to turn to leading drugmakers like Amgen when looking for forever stocks. The business of developing and marketing innovative therapies for serious, sometimes life-threatening diseases will never go out of style until we find all-purpose cures for all conditions.

While individual drugmakers could fail, Amgen's business looks strong enough to avoid that fate for a long time. It boasts an extensive lineup of medicines, with over 10 that each generated upwards of $1 billion in sales in 2024. In the first quarter, revenue increased by a strong 9% year over year to $8.1 billion.

Amgen's lineup is diversified across several therapeutic areas, including oncology, immunology, rare diseases, and respiratory diseases. Key growth drivers (not an exhaustive list) include Tezspire, an asthma medication; Repatha, which treats high cholesterol; and blood-cancer medicine Blincyto.

Like every drugmaker, Amgen will, at some point, face patent cliffs that will erode sales of important products. The way to get around this issue is to develop newer medicines. Looking at the company's pipeline, it seems more than capable of doing so. It boasts a few dozen programs that should lead to label expansions and brand-new approvals.

The company has been working on a promising weight management candidate, MariTide. Though this product somewhat disappointed in phase 2 studies, it's still in the running to reach the market and generate decent sales, considering how rapidly the anti-obesity space is growing. Besides, Amgen is developing another weight loss candidate that's still in phase 1 studies.

Weight loss isn't the only area the biotech is going after; it has exciting products across others. In the biosimilar realm, it recently launched Pavblu, a competitor to Regeneron Pharmaceuticals' blockbuster, Eylea, which treats an eye condition called wet age-related macular degeneration. Amgen should be able to overcome future losses of patent exclusivity for key products, even if it goes through periods of declining sales as a result.

The stock should perform well in the long run and continue rewarding shareholders with regular dividends. The company has increased its payouts by 201% in the past decade so it currently offers a forward yield of 3.4% -- while the average for the S&P 500 is 1.3%. Amgen might not be as exciting as certain tech companies, but the stock looks like a strong buy-and-forget pick.

2. Microsoft

Microsoft's shares struggled for much of the year. The threat of tariffs and the fear that they could lead to an inflationary environment or a recession (or both) weighed on many tech giants, including Microsoft.

However, the company more or less put those fears to bed (for now) with its latest quarterly update, for the third quarter of its fiscal year 2025, ending March 31. Revenue jumped by 13% year over year to $70.1 billion.

The tech leader can thank its cloud computing arm, Microsoft Azure, for that performance; the segment's revenue jumped by 33% (or 35% in constant currency) compared to the year-ago period. And there's more where that came from. In its fourth quarter, Microsoft expects Azure revenue to increase 34% to 35% in constant currency.

So, despite economic uncertainty, the company is doing fine. The important lesson here isn't that its quarter was strong. It's that even during challenging times, Microsoft can perform relatively well. That's why the stock has thrived for decades, making longtime shareholders much wealthier.

Microsoft's ability to navigate tough periods is one factor that makes it an attractive forever stock. Here are two more. First, the company has a strong moat from its brand name and switching costs within its cloud and software productivity businesses. Second, it has attractive long-term growth opportunities; cloud computing and artificial intelligence (AI) are the most exciting of the bunch.

That means that even with a market capitalization above $3 trillion, Microsoft still has a bright future, and the company's dividend looks safe. It might only have a forward yield of 0.8%, but the rock-solid underlying business, ability to generate plenty of cash, and consistent dividend growth record (it's increased its payouts by 168% over the past 10 years) more than make up for the low yield.

Microsoft is a top stock to hold on to for growth and income investors alike.

Should you invest $1,000 in Amgen right now?

Before you buy stock in Amgen, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amgen wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,471!*

Now, it’s worth noting Stock Advisor’s total average return is 909% — a market-crushing outperformance compared to 162% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 5, 2025

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen, Microsoft, and Regeneron Pharmaceuticals. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.