SCHD, BND & PFF: The Best Kept Secret For High Cash Flows?

Which pays the most: dividend fund SCHD, bond fund BND or preferred stock fund PFF? See how preferred equity may be able to potentially boost your cash flow and whether it might be right for you as part of an overall diversified portfolio.

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PFF, BND, and SCHD. Which might be the best kept secret for high cash flows? Hello, Diamond Nestec members, Super Savers and Course fans. I hope you're healthy and well. As we've been discussing on this channel, preferred equity, also known as preferred stock, preferred shares, or just simply preferreds, they can provide investors a relatively high and predictable income stream via qualified dividends that may be taxed at the generally lower long-term capital gains rates versus the full marginal income tax rates. No surprise then that some of you in our community have already added preferred or are tempted to add some to your portfolio. And one of the top questions we've gotten recently is this given the current volatility in the market, how do preferred equity funds compare to bond funds and dividend funds in terms of performance, cash flow, and predictability? Remember that preferred shares rank before common equity, but behind bonds in a company's capital hierarchy, and the preferred dividends, like ordinary dividends, are not guaranteed. So it's not really an apples to apples comparison. But with that in mind, here are the three topics that we're covering today. One, how are some popular funds building high and predictable income streams from preferred stock, bonds, and common equity? Two, what is the track record of these funds? And three, how reliable were the cash payouts in the past? And what's our personal perspective? And specifically, today we'll be covering three funds that are frequently talked about in our community. The preferred equity fund will be iShare's Preferred and Income Securities ETF, PFF. The bond fund will be Vanguard's Total Bond Market ETF, BND, and the dividend fund will be Schwab's U.S. Dividend Equity ETF, SCHT. Drop a comment below and let me, Marcus, and the community know. Do you own any PFF, BD, or SCHD in your portfolio? And if yes, what's your experience been so far? Let's dive in now, folks. How are some popular funds building high and predictable income streams from preferred stock, bonds, and common equity? Here is an overview of PFF, BND, and SCHD. In this column with the fund name, and in this one, the fund ticker. And in the next columns, we have the funds total assets, expense ratio, date of establishment, dividend frequency per year, and the price per share at the time of this taping on May 21st, 2026. And let's start with BlackRock's iShare's Preferred and Income Securities ETF, ticker PFF, with total assets of $14 billion. This $14 billion in assets. Make PFF the largest preferred equity fund on the market by a margin. PFF has more than two times the assets of its second place competitor, First Trust's Preferred Securities and Income ETF, Ticker, FPE. For today's fund comparison, though, against Vanguard's extra large bond fund, BND, and Schwab's Popular Dividend Fund, SHD, the same $14 billion in assets makes PFF the smallest fund on our list. Which makes sense really because remember, the preferred market is relatively small. It's only about 1% of the size of the overall stock or bond market. This also means that the preferred market is less liquid and transaction costs within the preferred market are sometimes higher. This is reflected in this expense ratio of 45 basis points for PFF, the highest on our comparison list. And if you need a refresher on preferreds, please refer back to these recent videos here from Marcus, linked below for your convenience. VIP Investment Club members, please refer back to the member videos here for an even deeper dive into preferreds and the top preferred ETFs on the market. PFF was established in 2007 and pays dividends 12 times per year, so monthly. And here is its latest price per share at the time of this taping, on May 21st, 2026, $31.02. And here are PFF's top 10 holdings. Boeing is the largest position in the portfolio. But we see other traditional industrials and utilities as well, including Albemar, a specialty chemicals company, and utility holding company Nextera, and this last one even twice with Nextera Energy and Xtera Energy Units. Under Industrials, we can also find some well-known tech companies, including Oracle, Hewlett-Packard, and Microchip Technology, an Arizona-based designer and manufacturer of semiconductors. We also see some financial companies, which are the largest issuers of preferred after all, including Wells Fargo, Bank of America, and Citigroup. That said, this top 10 list also shows about $340 million of MSTR, which is pretty much 2.5% of the portfolio. MSTR is the company formerly known as MicroStrategy, but is now known as simply just Strategy Inc., and it defines itself as a Bitcoin treasury company. Strategy has very limited operational business, as we explained in this previous video here, also linked below for your convenience. This gives it a bit of a different underlying risk profile from the other names on the list, which have an operational business. Strategy Inc. holds a B- rating from SP at the time of this taping on May 21st, 2026. PFF's portfolio tracks an index and doesn't have much choice as to which names to include in its portfolio, I guess. So that was PFF. Let's keep going now with our bond fund for today's comparison. Next on our list is Vanguard's Total Bond Market ETF ticker BND with total assets of $390 billion and an expense ratio of only three basis points. BND is the largest fund on our list today, as well as the cheapest one. BND tracks the entire taxable investment grade US bond market, excluding inflation protected bonds, and it does so by owning more than $11,000 bonds. You almost can't get more diversified than that. More than two-thirds of BND's portfolio have US government credit ratings, including treasuries, agencies, and government mortgage-backed bonds from the likes of Fannie Mae and Freddie Mack. The private sector is all investment grade, although predominantly in the lower single A and triple B rating bands. BND was also established in 2007 and pays a dividend every month, just like PFF. And here is BND's share price at the time of this taping. $72.74. And our third fund for today's comparison is Schwab's US Dividend ETF, ticker SCHD, with $93 billion in total assets and an expense ratio of six basis points. SCHD invests in common equity, regular shares, but tries to select firms whose dividends are of a high quality and sustainable. This makes its portfolio very different from the tech-heavy SP 500. SCHD's top 10 holdings show some tech companies, including Texas Instruments and Qualcomm, but also healthcare or pharma firms such as United Health and Merck, energy firms Chevron and Konoco Phillips, and consumer companies Coca-Cola, PepsiCo, and Procter Gamble. SCHD was established in 2011 and behaves like a more mainstream equity fund in that it pays its dividends quarterly, not every month like PFF and BND. And here you have SCHD share price at the time of this taping. $32.10. So now that you have a good understanding of how PFF, BND, and SCHD are set up as preferred equity, bond, and dividend funds respectively, let's move on to the next section for today and see how these very different strategies have worked out for each fund over the past several years. What is the track record of these funds? This table walks through the historical performance of PFF, BND, and SCHD. As before in this column, we have the fund name, and in this one we have the ticker. And in this section, we have the fund's trailing total return on an annualized basis for year to date, over a three-year period, a five-year period, and a ten-year period. The trailing total return tracks what an investor would have made on an annualized basis from both distributions as well as share price movements, meaning dividends plus capital gains or losses, had he or she invested at the beginning of this year, three, five, or ten years ago. The next column show the 30-day SEC yield and the trailing 12-month distribution yield, also known as the TTM yield per Morningstar. Both distribution yields measure annualized cash distributions divided by the share price at the end of the last observation period. The only difference is that the 30-day SEC yield, as the name implies, takes the payouts, essentially the dividends, from the last 30 days and annualizes them, while the TTM yield uses the actual distributions over the past 12 months. And in the last column, we show the percentage of the funds distributions that were classified as qualified dividends for taxation purposes in 2025. Qualified dividends like the type that are often paid out on common or preferred equity may be taxed at the usually lower long-term capital gains tax rates and not at the full marginal income tax rates that apply to both non-qualified dividends and interest payments. Please keep in mind that we're not tax advisors at Diamond Neste. Always consult with your trusted tax advisor for your specific situation. And again, all the data in this table is as of the time of this taping per May 21st, 2026, and past performance is not indicative of future results or outcomes. So let's start with iShare's Preferred and Income Securities ETF, PFF again. It had an annualized trailing total return year to date of a modest 2.08%. And if we look back a bit further, we can see the total returns have been volatile. 7.63% for the past three years, 1.58% for the past five years, and 3.4% for the past 10 years. That said, the distribution yield, the actual cash paid out to the investor, may look attractive with an SEC yield of 6.28% and a TTM yield of 5.65%. Remember that these trailing total returns are composed of the distribution yield plus any capital gains or losses. So when the distribution yield is higher than the total trailing return, as has been the case so far year to date, this can only mean that PFF's share price must have gone down for the year so far, as indeed it has, by about 2%. Let's see now how the track record of Vanguard's total bond market ETF, BND, and Schwab's US dividend equity ETF, SCHD, compare with that of PFF. When it comes to trailing total returns, the winner is SCHD with a 10-year trailing total return of 12.96%

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(Cont.) SCHD, BND & PFF: The Best Kept Secret For High Cash Flows?

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only 3.4% for PFF and 1.62% for BND. And the picture is similar for the other observation periods here as well. This shouldn't really come as a surprise though, given that SCHD, despite its dividend twist, is at its core an equity fund. So it still participates in the growth and capital gains upside that common shares offer. Whereas both PFF and BND are really designed to generate income, higher cash distributions, and are not so concerned about capital growth. We see this when we look at the distribution yield for each fund. Here, PFF has the strongest track record with an SEC yield of 6.28% and a TTM distribution yield of 5.65%, as we just mentioned. BND is second in this comparison, with 4.46% and 3.93% respectively, while SCHD had the lowest cash distributions, only 3.33% and 3.29% respectively. If you're holding these funds in a taxable account though, the after-tax perspective may still modify the picture a bit. PFF and SCHD may both benefit from lower long-term capital gains tax rates. 66% of PFF's dividends and 98% of SCHD's dividends were qualified in 2025. BND as a bond fund, on the other hand, will not show any qualified dividends, but will have all payouts taxed at the less advantageous full marginal income tax rates at the federal level. That said, 44% of BND's distributions in 2025 were from treasuries and other bonds that may be exempt from state and local taxation. So depending on your personal situation andor state of residence, the percentage of qualified dividends andor of distributions that may be exempt from state and local taxation may make a difference, or not. But we think we may still summarize our analysis by saying that SCHD leads in terms of long-term total returns, while PFF has the highest cash distribution yields, and BND is somewhere in the middle, so to speak. So if building an extra income stream is what you're looking for, you may want to take a closer look at PFF, which leads us to the next section of today's video. How reliable were the cash payouts in the past? And what's our personal perspective? Dividends on equity are not guaranteed, neither the common dividends from SCHT nor the preferred dividends from PFF. Preferred shares are also ranked behind bonds in the capital hierarchy, as we mentioned towards the beginning of this video. So there is still the lingering question of how stable and reliable the dividends from a preferred equity fund like PFF might be. Was this 6.28% SEC yield and this 5.65% 12-month distribution yield for PFF perhaps just a fluke? This chart shows the dividend payouts from our three funds over the 10 years from 2016 to 2025. These are absolute amounts, so dollars, not percentages of the share price, like with the distribution yields and total returns we discussed earlier. However, it should give you a first feeling for how stable the distributions have been historically. The blue line is PFF, the red line is BND, and the yellow line is SCHD. So at a first glance, we can see that the red line for the interest payments from BND's bonds looks more volatile. It has more ups and downs than the blue line for the preferred dividend payments from PFF. And this was true even during COVID, where BND's payout showed a larger dip in 2021 than PFF's. And when we ran the numbers, they confirmed the first impression from the graph. While BND's dividends showed a standard deviation of 17% on average over the past 10 years, it was only 7% for PFF. In our minds, a good part of the explanation is that the issuers of preferred shares, and in particular, large investment grade firms, often try to pay their dividends fully and regularly for as long as they can, even through market turbulence. Despite the right to do so at the issuer's discretion, preferred dividends seem to be suspended mostly only when the issuer runs into really deep financial trouble, which may be a situation, by the way, when bonds may not feel that safe either. Nonetheless, in the grand scheme of things, we might still say that both PFF's preferred dividends and BND's interest distributions were more or less stable over the past 10 years, with some ups and downs according to the interest rate and business cycle. SCHD's distributions though followed a different pattern. They essentially kept growing every single year from 42 cents per share in 2016 to $1.05 per share in 2025. Don't forget though, the distribution yield, the cash payouts, as a percentage of the share price were significantly lower for SCHD than for PFF, as we've seen already. So that was a good look at these three very different funds that quite a few of you either hold in your portfolio or are considering buying. So let's try to tie everything together. Here's our personal take. First, if you want a high and predictable income stream, adding some preferred stock exposure may make sense. Preferred dividends are generally on the higher side. The tax treatment may be favorable, and the payouts were quite stable and predictable over the past 10 years, at least for PFF, as we've just discussed. And while the Lammer family does not have any exposure to preferred equity in our portfolio right now, it is something that we would likely consider adding when the time comes for income generation on our investments. That said, even if we were to invest in a preferred fund like PFF, it would go into the boost part of our portfolio if we were planning for retirement. The part that protects us against inflation, helps build generational wealth, andor is a source of discretionary spending. And the primary reason for this is that preferred dividends come with their own risks and are not guaranteed in any shape or form. Remember that according to our base and boost strategy, the base part of the portfolio is only for guaranteed income that lasts a lifetime so that we can cover our everyday essential living expenses in retirement. These may include Social Security, a private or company pension, annuities that guarantee a lifelong income, and lattered longer-term migas, treasuries, and or similarly safe non-callable bonds, not preferreds or preferred funds. In our minds and in the mind of some of our regulars here, based on the feedback we've received, now may be a particularly good time to explore fixed annuities for some higher yielding guaranteed income in the later years of life, given that annuity rates continue to offer some of the best fixed rates on the market at the moment, although at the price of less liquidity. Check out these videos here if you want to learn more about the different types of annuities, who should buy which type, and why, or email us at jenniferdimondsic.com so that we can connect you with our trusted annuity specialist who can help you find the best rates that are out there right now. Second, if you're still in the growth phase of your financial journey but want some additional income on the side with some built-in inflation protection, a dividend fund like SCHD might be something to consider for the boost part of a portfolio. That said, for us personally, a dividend fund can feel a bit like neither here nor there. I'd probably go for a pure SP 500 fund for growth and inflation protection, and a preferred fund like PFF for tax-advantaged income. But everyone's financial journey is different. Third, the case for a broad bond fund like BND that is essentially 70% treasuries and government-backed mortgage bonds is not that easy to make for us. Bonds are not designed to deliver the growth of an equity fund like SCHD. And as for the distribution yield, BND trailed behind PFF before and possibly even more so after taxes. BND didn't even have an advantage in terms of stability of payouts versus PFFs over the past 10 years either, as we've seen. And as many of you know, when it comes to treasuries and more or less safe bonds like agencies, we have a strong preference for buying and holding individual bonds to maturity because they give us these three C's: full clarity over what I own, control over the amount and timing of interest payments and principal repayments, and at a lower cost. This is different from a bond fund where we'll need to sell our shares at whatever the market price may be when we need to access our capital. Personally, I would only consider bond funds that specialize in some aspect of the market and can potentially offer a higher yield. For example, a long term investment grade corporate bond fund like Vanguard's VWESX or maybe even some high yield bond funds. Again, such higher yielding bond funds would be something we would put into the boost part of our portfolio. As the distributions may not necessarily be gained. Guaranteed andor stable over longer periods of time. Drop us a note below if you're interested in exploring some of these options further. But let's wrap up now. If you're tempted to dig a bit deeper into preferred stock for yourself, keep in mind that past performance is not indicative of future results or outcomes. We used PFF as a preferred equity fund example today, given that it is the largest one on the market at the moment. Plus, quite a few of our VIP investment club members have asked about it. But there are certainly many different flavors of preferred, as markets likes to call it. Again, VIP investment club members, please refer back to the member videos here for a refresher on preferreds and the top preferred ETFs on the market. Alright, Diamond Estic members, Super Savers, and Course fans, I hope you enjoyed this video and learned something new. And see again very soon with more brand new wealth building content for your financial journey.