The Dividend Dust: A Slow Yield for SCHD

The Schwab U.S. Dividend Equity ETF – SCHD, they call it – has become a fixture in these times, a solid presence among the shifting sands of the market. For a decade, it gathered itself like a quiet storm, drawing in billions with the promise of steady return, a low cost of keeping, and a method that seemed, well, sensible. It was a good thing, a hopeful thing, in a world that often forgets the value of a consistent hand.

But the land has changed. The current season favors a different crop. The high, bright blooms of technology – the so-called Magnificent Seven – have drawn the sun and the rain, leaving the more humble dividend payers to struggle in the shade. For three years now, SCHD has trailed behind, a good ship caught in a current that runs against its sails. It’s not a failing, exactly, but a reckoning with the way things are.

I still hold that this is a worthy vessel, a fund built on sound principles. But the question hangs in the air, dry as the prairie wind: will 2026 be the year it finds its footing again? I confess, I’m not convinced. The signs are subtle, the whispers of change faint, but they suggest a longer journey than a single year can mend.

Four Reasons for a Slow Harvest

1. The Soil Isn’t Right

The last three years have seen wealth flow towards the tech and communications sectors, a concentrated bloom in a field that should be more diverse. Industrials offered a brief respite, and consumer spending held steady, but beyond that, most sectors have lagged behind the relentless climb of the S&P 500. SCHD, by its nature, doesn’t often reach for those bright, fast-growing things. It seeks the deep-rooted, reliable yields, and in this climate, that’s meant being passed by.

2. The Thirst for Growth

After years of easy gains, of double-digit returns from both the Nasdaq-100 and the S&P 500, the modest yields offered by dividend stocks – a mere 1% to 2% – seem a small reward. Investors, accustomed to a flood, now look askance at a slow trickle. They see dividends as a drag, not a benefit, a weight on the potential for explosive growth. The allure of the new, the untested, is strong.

3. A Modest Yield in a Changing Tide

There was a time when a 3.7% yield was a beacon, a safe harbor in a sea of near-zero interest rates. But the waters have shifted. Short-term Treasury bonds now offer comparable yields, with the added security of government backing. Why take on the risk of equity when a predictable return is readily available? It’s a simple question, and one that many investors are answering with their wallets.

4. The Weight of Energy

SCHD’s last rebalancing saw a significant allocation to the energy sector – nearly 19%, far above its representation in the S&P 500. It was a gamble, a hope that energy prices would rise. But the winds haven’t favored that bet. Energy has underperformed, and that heavy allocation has become a drag on the fund’s overall returns. The promise of black gold remains, but for now, it feels like a burden.

Four Seeds of Hope

1. A Broadening of the Field

If the market begins to favor a wider range of stocks, if value and dividend payers start to outperform, SCHD will undoubtedly benefit. We’ve seen glimpses of that in early 2026, a slight shift in the winds. But sustained growth from these sectors is crucial. It’s a long road back, but a broader harvest would be a welcome sign.

2. A Rotation of Earnings

Tech earnings have driven much of the recent growth, fueled by the promise of artificial intelligence. But that growth can’t last forever. If earnings begin to slow, if other sectors step forward to fill the void, SCHD will be well-positioned to capitalize. It’s a question of balance, of a more equitable distribution of wealth.

3. A Tailwind for Energy

Outperformance from the energy sector would undoubtedly give SCHD a boost. But that requires a significant shift in the global landscape, a geopolitical shock or a supply disruption. Without that, energy is likely to remain a drag on returns. It’s a gamble, a hope for a favorable wind.

4. A Season of Correction

In 2022, when the market corrected sharply, value, dividend, and low-volatility stocks fared relatively well. A similar correction could provide a tailwind for SCHD. It’s a reminder that even in a bull market, prudence and diversification can pay off.

A Steady Hand in Uncertain Times

No investment strategy lasts forever. SCHD was once a top performer in Morningstar’s Large Value category, but those days are past. Yet, its underlying principles remain sound. It seeks the best of the best dividend stocks, incorporating elements of growth, quality, and yield. It’s a careful, considered approach, a refusal to chase fleeting gains.

For a core dividend equity position, few funds do it better. Whether that translates into market outperformance in 2026 remains to be seen. But in a world that often forgets the value of a steady hand, SCHD offers a measure of comfort, a reminder that even in the midst of change, some things endure.

2026-01-15 21:22