The Schwab US Dividend Equity ETF (NYSEARCA:SCHD) made an exceptionally strong comeback earlier this year and has returned more than even the Invesco QQQ Trust (NASDAQ:QQQ), if you count dividends. The investors who left SCHD in droves during the Mag 7’s dominance have flocked back as these stocks waned and SCHD’s holdings stunningly outperformed.
However, things are not as simple as they seem. SCHD has been slightly underperforming in recent months and is becoming increasingly tech-heavy.
This ETF used to be almost devoid of pure tech stocks, but after the March 2026 reconstitution, it now includes names like Qualcomm (NASDAQ:QCOM | QCOM Price Prediction). Admittedly, QCOM yields 2.06%, which is higher than the typical tech stock. But at the same time, this is a stock that swung from $124 on April 7 to $251 on May 29, and then back down to $178 as of this writing. That’s not how stocks in a safe dividend ETF should behave.
Is this a departure from the formula that worked earlier this year, or is SCHD still a solid holding?
Let’s take a look.
The formula is still the same
If you look at SCHD’s total holdings, “only” 12.4% of it falls in the Technology category. That’s way higher than it was, but the core formula hasn’t changed. SCHD tracks the Dow Jones U.S. Dividend 100 Index, and the core selection is the same one it has always used. The recent inclusion of AI stocks is simply the consequence of AI stocks constituting a larger proportion of major indexes.
Any passive ETF tracking major indexes will eventually hold more and more AI stocks as long as this AI rally continues.
SCHD isn’t alone in this. If you look up any dividend growth ETF, more likely than not, an AI stock will be the top holding with a 5%-plus weight on its own. In fact, most of the top 10 holdings are going to be linked to AI in some form.
Is this a bad thing for SCHD?
It’s likely not a bad thing for SCHD. The AI and tech stocks that are inside SCHD are not like Micron (NASDAQ:MU), or SpaceX (NASDAQ:SPCX). These businesses pay decent dividends, and even if the stock swings, they have good margins and stable dividends. Over the long run, this could be good for SCHD if the AI rally continues, as the ETF will be able to capitalize on both the yields and the upside.
If the AI rally falters, the tech exposure isn’t sufficient to meaningfully damage SCHD’s portfolio. The best thing you can do right now is to keep reinvesting those dividends. Reinvested dividends will keep compounding your gains regardless of what happens to the underlying stock, and you can cash out when the prices are inevitably favorable.
SCHD is still the best dividend stock you can buy
Even with these recent changes that have led to higher tech holdings, SCHD is arguably the best dividend ETF. The dividend yield is neither too low nor too good to be true, plus the expense ratio is at a mere 0.06%.
On top of that, the 10-year dividend growth rate is above 10% annually. Even purpose-built dividend growth ETFs like DGRO (NYSEARCA:DGRO) fall short of SCHD’s growth. SCHD’s average PE ratio is just 17x, vs DGRO’s 22x, so it remains significantly cheaper despite the addition of dividend stocks.
If you have a dividend portfolio, keeping SCHD as among your biggest (if not the biggest) is a very good idea. There is only one major dividend ETF with a low tech weight (at 16%) that has outperformed SCHD over the long run, and that is the State Street SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA). The outperformance since inception is just 4%, but a major con is that DIA’s dividend yield is just 1.38%, and it carries a 0.16% expense ratio.
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