Prediction: This Dividend ETF's Yield Won't Stay Under 3.5% for Long

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) yields about 3.3% right now. That's modestly below its long-term average, and I don't think that will last for long. I expect the yield to climb back above 3.5% within the next year or sooner.

Since the beginning of 2023, this exchange-traded fund (ETF) has spent the majority of its time with a yield above 3.5%. It peaked in the first part of 2025 but has declined fairly steadily since then. Its current yield is actually the lowest it's been since late 2022.

But the current dip is largely a function of a strong price rally, not a change in the dividend distribution itself. Year to date, the Schwab ETF is up nearly 22%, and up 27% over the past year. This is actually the kind of behavior you want to see from a fund like this. It's paying out a sizable quarterly dividend, but it's adding significant share price appreciation on top of it.

Source: Motley Fool.

A steadily increasing dividend backed by quality stocks

If you look deeper, though, you'll find that the fund's total first-half 2026 dividend distribution of $0.5094 per share is actually slightly higher than 2025's distribution of $0.509. The Schwab U.S. Dividend Equity ETF has raised its annual dividend distribution for 14 consecutive years, every year since its 2011 inception. And this could be the year it stretches that streak to 15.

Yes, a decline in share price could get the yield back to 3.5% based on the math alone. But I don't see that as the real catalyst for getting there. This fund's quality, growth, and ways for screening stocks based on yield have helped produce one of the best long-term dividend growth strategies among ETFs. I think its simple ability to steadily generate increasing dividend payments over time will be the key factor in pushing the yield back to its historically normal level of around 3.5%.

The Schwab U.S. Dividend Equity ETF has grown its payout by 7.5% annually over the past five years and by more than 10% annually over the past decade. It has clearly demonstrated the ability to raise its income production over time. After years of market gains being driven almost entirely by its share price, I believe the time for dividends being a greater percentage of overall total returns is coming.

Slowing GDP growth, inflation, affordability, and geopolitics are just some of the risks the market is dealing with right now. Some of them have no real end in sight. If earnings growth expectations don't deliver over the next few quarters, the S&P 500 is at real risk of a correction. IBM's recent results and market reaction show what might be in store for U.S. stocks if they underdeliver.

That scenario could make this ETF not only a relative outperformer but one where its dividend growth rate could push the yield higher in the process. I'd look for this to play out over the next two to four quarters.

David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.