As volatility in the broader market intensifies, individual investors are increasingly turning to dividend-focused exchange-traded funds (ETFs) to safeguard their portfolios and generate steady income. One fund drawing particular interest is the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD), which is designed to track the performance of high-dividend-yielding U.S. stocks with a consistent history of dividend increases. The ETF appeals to a wide range of investors due to its cost-efficiency, historical performance, and sector diversification. Long-term investors looking to avoid the risks of individual stock volatility may find SCHD a compelling alternative for income generation and capital preservation.
Compared to earlier reports that emphasized SCHD’s historical double-digit returns and consistent performance, the latest update highlights a more recent sector rebalancing after the ETF removed companies like Pfizer and BlackRock from its portfolio. In past data, the fund’s top holdings were more technology-heavy, but current allocations show a greater emphasis on energy and consumer staples. The ETF has also completed a three-for-one stock split recently, underscoring its popularity and accessibility. These changes mark a shift in focus, reflecting broader market uncertainty and investor demand for more defensive sectors.
What makes SCHD different from other ETFs?
The Schwab U.S. Dividend Equity ETF follows the Dow Jones (BLACKBULL:US30) U.S. Dividend 100 Index, selecting companies with a minimum of 10 consecutive years of dividend increases. It excludes Real Estate Investment Trusts and applies strict criteria to its holdings. As of now, SCHD has a net asset value of $27.58 and a dividend yield of 3.49%. Over the past five years, its performance has risen over 80%, supported by a low expense ratio of 0.06%. Unlike more volatile funds, SCHD’s conservative strategy appeals to those seeking stable returns.
Why has SCHD outperformed in a turbulent market?
SCHD has outpaced both the S&P 500 and Nasdaq 100 in recent months, largely due to limited exposure to the technology sector, which has been affected by concerns over an AI-driven market correction. Recent rebalancing has shifted focus toward energy and consumer staples, which now account for 21% and 18.7% of the portfolio, respectively. Other major sectors include healthcare, industrials, and technology—with technology making up a relatively small 7.9% of the fund. This positioning has insulated the ETF from tech-sector volatility.
The ETF currently holds 97 stocks, with top positions in companies such as ConocoPhillips, Merck & Co., Schlumberger NV, Target Corporation, and General Mills Inc. These companies have demonstrated consistent performance through various economic cycles and are considered reliable dividend payers. By investing only in businesses with strong fundamentals and a steady dividend track record, SCHD maintains a high-quality portfolio.
According to Schwab Asset Management, the ETF’s annual reconstitution process ensures that only qualifying companies remain in the fund.
“We aim to maintain the integrity of SCHD by keeping only those firms that meet strict dividend growth criteria,”
the firm stated. This approach enables SCHD to deliver dividends consistently while adapting to changes in the market.
With a yield of 3.5%, SCHD offers a significantly higher return than the S&P 500 average of 1.2%. The fund provides diversification, especially for investors seeking exposure to sectors with lower volatility. Buying the individual stocks within the ETF separately would be more costly and less efficient. For those interested in long-term income with reduced exposure to market swings, SCHD presents a straightforward strategy.
Investors considering ETFs as part of a diversified income strategy may find SCHD suitable due to its disciplined screening process, low fees, and sectoral balance. While it does not chase high-growth sectors like technology, its defensiveness and yield stability make it appealing in an environment with frequent market shifts. Monitoring annual rebalancing and sector exposure updates can help investors understand how the fund adapts to prevailing economic conditions. SCHD continues to serve as a potential core holding for dividend-focused portfolios by offering access to financially sound companies with a history of shareholder returns.
