This High-Yielding Dividend ETF Is Beating the Market, and Here's Why It Could Still Go Higher

Dividend stocks normally aren't known for generating strong returns, and definitely not for widely outperforming the market. But that's what's been happening in 2026, as investors have been looking for safety and stability, rather than taking on risky growth stocks.

While the S&P 500 has fallen by nearly 2% thus far, one exchange-traded fund (ETF) that has been vastly outperforming it is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) -- it has surged an incredible 13%. The dividend-focused ETF has been a popular option with investors this year, and here's why it can continue to rise higher.

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Economic uncertainty and instability may encourage investors to continue to seek out safety

The main appeal of the Schwab fund is for the diversification, dividend income, and the general stability that it offers. While the ETF does still carry some risk, it has averaged a beta of 0.65 over the past five years, which tells investors that it's generally less volatile than the markets as a whole. A beta of 1.0 would indicate an investment has closely followed the market, and the lower the value is, the less volatile it has been.

At a time when economic conditions are a bit concerning, and there's the potential for inflation to spike due to rising oil prices, investors may continue to be inclined to reduce their risk. And one of the ways to do that is to invest in the Schwab ETF and the types of stocks it invests in, which are companies with strong financials, which can afford to pay dividends, including big names such as Verizon Communications, Chevron, and Coca-Cola, among many others.

With a yield of 3.3%, the Schwab ETF also provides investors with a payout that's more than double the S&P 500 average of 1.2%, giving you an incentive to just hang on amid the uncertainty in the market.

The Schwab fund is a great option even if you aren't worried about the markets

Although the Schwab fund is doing well this year as the market is struggling, it's a good all-around buy for the long term, regardless of what you expect to happen with the economy. The ETF has excellent diversification, as more than half of its holdings are in fairly stable sectors, such as energy, consumer staples, and healthcare.

The ETF can be an excellent pillar to build your portfolio around, providing you with some great long-term stability and dividend income. This is the type of investment you can just buy and forget about.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.