Retail investors never cease to amuse me with their tendency to abandon investment strategies when they’re out of favor, only to pile back into them once performance improves. Case in point is the Schwab U.S. Dividend Equity ETF (SCHD).
Throughout much of 2024 and 2025, I saw countless posts on Reddit dismissing SCHD as a stale dividend fund while artificial intelligence (AI) stocks propelled the S&P 500 and Nasdaq-100 to new highs. The narrative was that dividend investing had become obsolete in a market dominated by mega-cap technology.
Fast forward to 2026, and the script has flipped. As of July 21, 2026, SCHD has delivered a 21.62% year-to-date total return, assuming dividends are reinvested. By comparison, the Vanguard S&P 500 ETF (VOO) has gained just 10.36%, less than half as much. Naturally, investors are paying attention again.
So today, I want to do two things. For investors who are new to SCHD, we’ll review what makes it one of the most distinctive dividend ETFs on the market. For longtime SCHD holders, we’ll dig into the factor and sector tilts that have helped propel the fund ahead of the S&P 500 so far this year.
What Is SCHD?
SCHD tracks the Dow Jones U.S. Dividend 100 Index while charging an exceptionally low 0.06% expense ratio. The index construction is more sophisticated than simply selecting the highest-yielding stocks. The result is a portfolio that currently offers a 3.33% 30-day SEC yield while emphasizing financially healthy companies capable of sustaining and growing their dividends.
It begins by identifying companies that have maintained at least 10 consecutive years of dividend payments. Those companies are then evaluated using a composite score based on free cash flow to total debt, return on equity, dividend yield, and five-year dividend growth. The 100 highest-ranked companies become the portfolio, with quarterly rebalancing and an annual reconstitution.
One characteristic investors sometimes overlook is that SCHD actually has fairly high turnover. As of the June annual reconstitution, 42.28% of the holdings changed. Ordinarily, that amount of trading could generate taxable capital gains. Fortunately, because SCHD is structured as an ETF, the in-kind creation and redemption process makes capital gains distributions rare.
Why Has SCHD Outperformed?
In my view, there are two primary reasons SCHD has outperformed both VOO and the broader S&P 500 so far in 2026. The first is the resurgence of the value factor. Alongside dividend ETFs, value-oriented strategies have broadly outperformed the market this year.
That’s not particularly surprising because many dividend ETFs are essentially value funds in disguise. SCHD fits that description well. The portfolio currently trades at a forward price-to-earnings ratio of 19.07 times, noticeably below VOO, while still maintaining an impressive 26.54% return on equity. Whenever large-cap value stocks outperform growth stocks, SCHD naturally benefits.
The second driver has been sector allocation. Following its most recent annual reconstitution, SCHD entered 2026 with substantial overweights in consumer staples (15.5%), energy (12.5%), and healthcare (11.7%) relative to the S&P 500.
While consumer staples and healthcare have delivered more modest returns, energy has been one of the market’s strongest sectors following supply disruptions stemming from the Strait of Hormuz during the U.S.-Israel-Iran conflict. That overweight has provided a meaningful boost to SCHD’s overall performance.
Going forward, however, investors should remain focused on the process rather than the recent performance. SCHD’s holdings change every year based on its screening methodology, so next year’s portfolio won’t necessarily look like today’s. Whether the ETF continues outperforming will depend on how its factor exposures and sector allocations evolve after future reconstitutions.
More importantly, strategies like SCHD only work if investors stick with them through multiple market cycles. The same value and sector tilts driving today’s outperformance can just as easily become headwinds in another environment. As always, the key is staying the course rather than chasing whichever strategy happens to be leading this year.
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