Is the Schwab U.S. Dividend Equity ETF the Right Buy Right Now?

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has enjoyed a huge resurgence in 2026. It's up nearly 18% year to date and is outpacing the Vanguard S&P 500 ETF (NYSEMKT: VOO) by roughly 7 percentage points. It's currently a top-five year-to-date performer within the category of U.S. dividend exchange-traded funds (ETFs), which consists of more than 100 funds.

The big catalyst for the rally was the 20% allocation the fund had coming into the year. It wasn't a popular move at the time, but it helped drive outperformance in Q1. But the fund reconstituted itself in March, altering its sector composition and individual components.

That makes it a good time to revisit this fund, its new composition, and how well the portfolio is positioned heading into the second half of the year.

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The "new" Schwab U.S. Dividend Equity ETF

This ETF tracks the Dow Jones U.S. Dividend 100 Index. As the index name suggests, it holds around 100 stocks. To qualify, a stock needs at least 10 consecutive years of dividend payments and must demonstrate good cash flow to debt, return on equity, dividend yield, and five-year dividend growth rate.

The Schwab U.S. Dividend Equity ETF fits those criteria. The current 3.2% dividend is attractive to income seekers, as is the more defensive lean of the portfolio.

The latter has changed lately, though. The tech sector represented around 11% of the portfolio at the time of the March reconstitution. Today, it's more than 15% of the fund and the third-largest sector holding. That's a growth drift investors don't typically see in this portfolio, which creates a deviation from the historical risk-reward profile.

Why the macro environment favors SCHD right now

Qualcomm and Texas Instruments have become the fund's two largest holdings, accounting for roughly 12% of the fund's allocation. Individual security holdings are capped at 4% at the time of reconstitution, so this is perhaps the best example of how the tech rally has taken over even traditional dividend ETF portfolios.

But consumer staples and healthcare are still the two largest sector holdings with a combined allocation of roughly 38%. That still makes the Schwab U.S. Dividend Equity ETF a defensive one despite the recent tech rally. There's still a sizable 16% allocation to energy, but even that's been trimmed significantly from its peak earlier this year. Overall, performance will still be heavily influenced by whether tech is driving U.S. stocks or not.

With inflation rising and the Fed looking unlikely to cut rates in 2026, there could be opportunities for this ETF if investors believe the rate environment is growing more negative or AI investment is likely to slow. That could result in a rotation away from tech similar to the one we saw earlier this year. The fund's P/E ratio of 19 doesn't offer quite the value it has in the past, but it does still reflect a discount relative to the S&P 500.

It's tough to argue against Schwab U.S. Dividend Equity ETF as a long-term holding given its portfolio quality, dividend strength, and high yield. In the short term, it may not be quite as attractive as it has been in the past since investors still seem enamored by artificial intelligence. But adding a quality dividend ETF to round out a tech-heavy portfolio is never a bad idea.

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.