The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is having an exceptional year, despite being considered a more conservative fund compared to growth-focused funds. The fund has returned about 20% in 2026 as of this writing, ahead of the roughly 11% gain in the S&P 500. And it's ahead of the tech-heavy Nasdaq-100's roughly 17% return, too.
That is not how this usually goes.
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The growth indexes have set the market's pace for most of the artificial intelligence (AI) boom, and income funds have been the thing investors held for stability. Yet here is a $95 billion portfolio of dividend payers trading at a 52-week high, yielding about 3.2%, and charging just 0.06% in annual expenses.
Here's a closer look at how the fund pulled it off.
The exchange-traded fund (ETF) tracks the Dow Jones U.S. Dividend 100 Index, and the index's admission rules do most of the work. To be eligible, a company must have paid dividends for at least 10 consecutive years. Real estate investment trusts and master limited partnerships are excluded entirely.
From that pool, the index evaluates the highest-yielding stocks on four fundamentals: free cash flow relative to total debt, return on equity, dividend yield, and five-year dividend growth. The top 100 make the cut, with buffer rules that favor current constituents. No single stock can exceed 4% of the index at rebalance, and no sector can exceed 25%. The whole thing is reviewed annually and rebalanced quarterly.
Those quality screens matter. Ranking on free cash flow relative to total debt and on return on equity helps the index avoid yield traps (companies whose fat dividends are a warning sign of a deteriorating business). The fund wants payers that can keep paying — which is exactly what I want from a dividend holding, too.
The result is a portfolio that looks nothing like the growth indexes. The biggest holdings are UnitedHealth Group, Home Depot, and Abbott Laboratories, each at about 4.3% to 4.5% of assets, alongside names like Coca-Cola, Procter & Gamble, and Chevron. Healthcare makes up about 21% of the portfolio, and consumer staples another 21%.
And what the rules screen out matters just as much. The market's dominant AI names, with their tiny yields or short dividend histories, don't come close to qualifying. Scan the fund's top 25 holdings and you won't find Nvidia, Microsoft, or Alphabet.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
