The Best Dividend ETF to Buy With $1,000 Right Now -- Up 18% This Year

After a rocky stretch over the past couple years during the artificial intelligence (AI) boom period, the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is back to being an elite performer.

The fund is up some 16% year to date, which puts it near the top of the U.S. dividend ETF category, and double the performance of the Vanguard S&P 500 ETF. It's been a strong comeback for a fund that has been a top-tier performer since its launch in 2011.

On top of that, the Schwab U.S. Dividend Equity ETF has grown its annual dividend every year since its inception. Not only have shareholders enjoyed a 13% average annual return since inception (in an environment where tech and growth stocks have dominated nonetheless), they've also been able to count on an income stream that's steadily improved and remained well above the rate of inflation.

But those returns were achieved during the first half of 2026. What does the second half and beyond have in store for investors?

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The catalysts for SCHD outperformance in 2026

The Schwab U.S. Dividend Equity ETF got out of the gate strong this year when investors rotated out of tech, priced out rate cuts, and began to consider value opportunities. This is the area of the market where this fund resides, looking for durable, financially strong companies that pay dividends and can withstand multiple economic cycles.

The pivot back into tech that started to occur at the beginning of Q2 has cut into some of that year-to-date outperformance, but the overall focus on quality has continued to benefit the fund. The Fed's hawkish pivot at the June meeting is also a net positive for SCHD's portfolio since higher price-to-earnings (P/E) stocks tend to lag in higher rate environments.

The recent quarterly rebalance also helped bring the portfolio back closer to what it traditionally looks like. Tech exposure had climbed to 15% of the fund thanks to big rallies in top holdings Qualcomm and Texas Instruments. Post-rebalance, tech is back to a 10%-11% allocation. The Schwab U.S. Dividend Equity ETF was able to capture some of the big advances in tech stocks, but has sold high on some of its winners. It's the very purpose of rebalancing in real time!

What should investors do with SCHD right now?

Strong corporate earnings growth has supported the Q2 rally. That could be more favorable for growth-oriented stocks, but it's looking like a lot of the short-term upside potential is priced in.

With concerns about inflation, geopolitics, and slowing growth still looming, we could see investors return to value and defensive stocks much like they did in the beginning of the year. In a rate-hiking environment, which could come later this year, defensive positioning could provide downside protection if the market views this as a headwind.

For anyone looking to build a portfolio around conservative growth and growing income, the Schwab U.S. Dividend Equity ETF is the fund to consider.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Qualcomm, Texas Instruments, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.