Buy, Sell, or Hold SCHD?
Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) took advantage of a big market rotation at the beginning of the year to regain its status as one of the best dividend ETFs in the marketplace.
Since the recent market dip, the fund has continued performing well, but it's lagged behind the huge tech rally of the past several weeks.
The fundamental backdrop makes the case for why SCHD is still a buy, although it may continue lagging tech stocks.
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The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has always been one of the most well-constructed dividend exchange-traded funds (ETFs) in the industry. Its screening process, which considers balance sheet fundamentals, dividend history, and yield, offers one of the most comprehensive strategies designed to identify the "best of the best" dividend stocks.
From its inception in late 2011 through 2022, the fund put up a stellar track record. But the dominance of megacap tech stocks from 2023 to 2025 put dividend stocks firmly out of favor, and its performance suffered. Thanks to a broadening of market gains, 2026 has marked the return of the Schwab U.S. Dividend Equity ETF as a leader within the dividend ETF category.
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The long-term investment case for this fund is fairly straightforward, but it's not always that simple. The focus on income, quality, and value disciplines is attractive. Whether or not investors should buy it right now, however, depends on where the economy is headed and whether the trend toward artificial intelligence (AI) stocks is here to stay.
Source: Getty Images.
The macro case for buying SCHD today
Whether the Schwab U.S. Dividend Equity ETF is a high-quality income fund suitable for almost any portfolio isn't in question. It is. The question is whether its investment style is likely to be in favor over the next six to 12 months.
In the few years prior to 2026, the clear answer was no. Tech stocks were rebounding from the 2022 bear market, and AI stocks were quickly gaining popularity. The sector's earnings growth was solid, which indirectly drove earnings growth for the S&P 500 (SNPINDEX: ^GSPC) as a whole. The result was an incredibly risk-friendly environment that experienced few obstacles on its way to a series of new record highs.
The Schwab U.S. Dividend Equity ETF delivered positive returns for shareholders, but nowhere near the returns investors in tech and growth ETFs were enjoying.
That changed at the beginning of this year. As the prospect of Federal Reserve rate cuts began to dim and concerns rose about the labor market and inflation, investors rotated back into the defensive and value stocks that the Schwab U.S. Dividend Equity ETF is full of. In March, the Iran war added another wrinkle to the outlook that favored defensive equities over more aggressive ones.
But now that the Iran conflict has simmered down and the S&P 500 has delivered a strong first-quarter earnings season, momentum has swung back to tech and growth. The Schwab U.S. Dividend Equity ETF is still sitting on a 17% year-to-date gain, but it feels like the AI trade is taking over again. The S&P 500 is on pace to deliver 27% year-over-year earnings growth in Q1, which would be the best number since 2021.
If you're looking for a reason why stocks continue to rise despite the Iran war and rising inflation, this would be it.
SCHD: Performance and key metrics
| Metric | SCHD |
|---|---|
| Expense ratio | 0.06% |
| Assets under management | $91 billion |
| Dividend yield | 3.4% |
| 1-year total return | 28.2% |
| 3-year annualized total return | 15.1% |
| 5-year annualized total return | 8.2% |
| 10-year annualized total return | 12.7% |
| Price-to-earnings ratio (NTM) | 14.4 |
| Holdings | 103 |
| Top sectors | Consumer staples (19%), healthcare (19%), energy (17%) |
Data source: Schwab. NTM = next 12 months.
The Schwab U.S. Dividend Equity ETF is positioned to deliver further gains for the remainder of 2026 and beyond. But with earnings growth accelerating at such an impressive clip, it may not perform as well as tech and growth ETFs.
Given the strong fundamental background, this ETF is an easy buy. But given the market's current appetite for risk, investors might want to temper their expectations that it will be beating the S&P 500 this year.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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