SCHD Just Made Big Changes. Is This Dividend Growth ETF Still a Buy?

The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) stands as one of the most popular dividend-growth vehicles on the market. Since its inception on October 20, 2011, the fund has delivered a cumulative total return of 478%, equating to a 13.3% annualized average. With a current yield of 3.3%, SCHD has turned a hypothetical $10,000 investment at launch into nearly $58,000 today. 

That track record has made it a cornerstone holding for income investors seeking steady payouts and capital appreciation. Yet after its annual index reconstitution took effect on March 23, some shareholders may be scratching their heads. SCHD made major adjustments to its portfolio, swapping out several high-flying names for others that have lagged badly. The moves raise an obvious question: Is this dividend-growth ETF still a buy?

A Rules-Based Strategy

SCHD tracks the Dow Jones U.S. Dividend 100 Index, a transparent, rules-driven benchmark that selects and weights 100 U.S. companies based on strict quantitative criteria. The index starts with dividend-paying stocks that have increased payouts for at least 10 consecutive years. It then applies fundamental screens measuring cash-flow generation, return on equity, and five-year dividend-growth rates per share. Qualifying companies are ranked and weighted primarily by their indicated dividend yield, subject to liquidity and sector constraints. 

The entire process is mechanical — no portfolio manager’s subjective opinions, market-timing calls, or emotional overrides ever enter the equation. Reconstitution happens once a year in March, forcing the ETF to sell stocks that no longer meet the tests and buy those that now rank highest.

This disciplined, emotion-free approach explains why SCHD has become a favorite of income investors. Over nearly 15 years it has consistently favored high-quality dividend payers while avoiding the pitfalls that plague actively managed funds, such as style drift or overpaying for glamour names. By sticking to its formula, SCHD has compounded returns steadily, even through market turbulence.

Winners Exit, Laggards Enter

The latest reconstitution delivered noticeable shifts. SCHD removed 22 holdings and added 25 new ones, trimming energy-sector exposure by roughly eight percentage points while boosting health care and technology. Among the most eye-catching exits were three energy names that had powered recent gains: Valero Energy (NYSE:VLO), up about 80% over the past year; Halliburton (NYSE:HAL), up 46.5%; and Ovintiv (NYSE:OVV), up 32%. These stocks helped SCHD post an impressive 11.7% year-to-date return. In their place, the ETF added companies that suffered steep declines: UnitedHealth Group (NYSE:UNH), down 48%; Ares Management (NYSE:ARES), down 30%; and Accenture (NYSE:ACN | ACN Price Prediction), down 35%. Other notable additions included Abbott Laboratories (NYSE:ABT), Procter & Gamble (NYSE:PG), and Qualcomm (NASDAQ:QCOM).

Why the Counterintuitive Moves?

At first glance the trades look backward — selling winners to buy losers. But the index’s rules explain everything. When a stock’s price rises sharply, its dividend yield falls. Once the yield drops below the minimum threshold or the company’s overall ranking slips, it is automatically removed. Conversely, beaten-down stocks often see yields rise, pushing them onto the eligible list. In addition, some former holdings simply failed the sustainability screen. FMC (NYSE:FMC), for example, cut its dividend sharply last October and was therefore deleted.

The numbers tell a reassuring story. The stocks removed posted an average five-year dividend-growth rate per share of roughly 37%, while those added have averaged nearly 63% over the same period. Across the full set of changes, the incoming cohort brings stronger dividend-growth quality than the outgoing group. The mechanical process effectively forced SCHD to sell high and buy low while simultaneously upgrading the portfolio’s long-term payout potential.

Key Takeaways

This is precisely how SCHD has delivered nearly 15 years of outstanding returns. By following an objective, rules-based formula, the ETF systematically sells stocks whose prices have run too far ahead of their dividend yields and replaces them with higher-quality names trading at more attractive valuations. It is the ultimate expression of “buy low, sell high.”

For long-term income investors, SCHD remains a pillar of any diversified portfolio. Its low expense ratio, broad diversification, and relentless focus on dividend growth continue to make it one of the most reliable ways to build wealth through compounding payouts and capital appreciation. The latest changes have not altered the fund’s DNA — they have simply refreshed it. Investors who stay the course will likely look back on this rebalance as just another smart, mechanical step on SCHD’s long road to outperformance.