Is the Schwab U.S. Dividend Equity ETF the Right Buy for This Market?
Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) has taken advantage of the rotation away from tech this year to become an elite performer.
As long as mega-cap tech stocks don't take over leadership again, this ETF is set up nicely to have its uptrend continue.
The market's preference towards quality stocks, regardless of whether tech is leading, is another key advantage.
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The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has rebounded from an ugly 2023-2025 stretch to once again become one of the best-performing dividend ETFs in the marketplace. Its lack of tech exposure during the AI boom caused it to meaningfully underperform the S&P 500. But as the market rotated away from tech in 2026, the fund's more defensive, value-oriented strategy made a huge comeback.
In April, tech stocks soared again, leaving the fund a laggard once more. The remainder of 2026 will likely feature a slate of catalysts, such as the Iran war, inflation, and corporate earnings, that could swing market leadership back and forth several times before all is said and done.
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Does that mean now is the time to buy the Schwab U.S. Dividend Equity ETF, or not?
Image source: Getty Images.
Key takeaways
- SCHD tracks an index of roughly 100 stocks that are screened for fundamental financial health, high yield, and long dividend histories.
- This fund benefited from 2026's rotation away from tech, making it one of the best-performing dividend ETFs year to date.
- If current inflation and labor market trends deteriorate further, it could signal a broader defensive shift that would benefit SCHD.
- If mega-cap tech resumes leading the market higher, this ETF is likely to underperform the S&P 500.
An economic slowdown continues the rotation away from tech
Even though U.S. stocks are continuing to set new all-time highs, there are cracks appearing under the surface. The jobs market has slowed to a crawl over the past year, a sign that companies are dialing back spending and growth. Inflation shot much higher in March due to the Iran war. Rising prices tend to be an economic growth killer and likely prevent the Fed from lowering rates to help the economy.
If those economic slowdown trends start to accelerate later this year, stocks could be vulnerable to another correction. In that scenario, more conservative equity funds could outperform the S&P 500, as they did in 2022.
Investors seeking out higher-quality stocks
One trend we've continued to see throughout 2026, even when tech was rallying, was a preference for quality stocks. Whether it's the outperformance of dividend ETFs and funds, such as the Invesco S&P 500 Quality ETF, which has beaten the S&P 500 by several percentage points, investors are favoring financially healthy companies over pure speculative ones.
That's a good sign for the Schwab U.S. Dividend Equity ETF.
| Metric | SCHD |
|---|---|
| Expense ratio | 0.06% |
| Assets under management | $89 billion |
| Holdings | 104 |
| Dividend yield | 3.4% |
| 1-year total return | 26.1% |
| 5-year annualized total return | 8.6% |
| Top sectors | Consumer staples (19%), healthcare (19%), energy (17%) |
Data source: Charles Schwab.
Tech stocks may have another rally if the economy avoids recession risk and corporate earnings deliver. But the fact that more than half of the S&P 500 sectors are outperforming the index this year suggests that investors are continuing to look beyond just that sector.
Even if that didn't continue, the Schwab U.S. Dividend Equity ETF's profile of financially healthy companies with long dividend histories is an ideal match for the current environment and almost any long-term portfolio.
Should you buy stock in Schwab U.S. Dividend Equity ETF right now?
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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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