The Curious Case of Schwab’s Dividend ETF: A Sizable Portion of Its Pie Sits in Just Three Sectors

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Now, if you’ve ever fancied the idea of latching on to a financial opportunity that offers a nice, tidy yield without the bother of constant fretting about fees, the Schwab U.S. Dividend Equity ETF (SCHD) is likely to have caught your eye. With a wallet-busting $69 billion in assets and an expense ratio so diminutive it practically whispers at 0.06%, it’s become the go-to vehicle for those who prefer their dividends large and their costs small.

With a 3.7% yield over the last 30 days (which, by the way, is practically three times what you’d nab from an S&P 500 index fund, poor thing), it’s an alluring proposition for those with a penchant for passive income. But there is, of course, a fly in the ointment, as there often is in such matters. A quick glance reveals that this highly-touted ETF is, shall we say, a tad choosy about the sectors it embraces-so much so that a good 54% of its assets are concentrated in just three areas. We’re talking energy, consumer staples, and healthcare-a combination that may raise an eyebrow or two.

Betting Big on High-Yield Sectors

The secret sauce to Schwab’s delectable dividend yield lies in its fondness for those reliable, dividend-paying sectors that tend to be a bit stodgy around the edges. You know the type: companies that aren’t too concerned with rocketing to the moon, but rather prefer to reward their shareholders with a nice, consistent payout rather than reinvesting the lot into growth initiatives. It’s a strategy that would make your grandmother proud, provided she had an eye for quality dividends.

When compared to the more unpredictable, sprightly S&P 500, this ETF leans heavily on the steady humdrum of energy, consumer staples, healthcare, and industrials. In fact, a glance at the sector breakdown reveals that energy, consumer staples, and healthcare account for a whopping 54% of the whole shebang. Energy alone makes up 19.2%, compared to a humble 3% in the S&P 500, while consumer staples sit at 18.8%, well above the S&P’s 5.2% slice.

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A Portfolio Built Around Dividend Quality and Quantity

Some might be quaking in their boots at the idea of such a hefty concentration in the energy sector, especially given the capricious nature of oil and gas prices. But fear not, dear reader, for the ETF’s managers are hardly dabbling with the kind of risky, high-stakes oil bets that might leave a more cautious investor with their palms sweating. No, no. They’ve wisely opted for the most robust players in the game-solid, dependable companies like Chevron, which makes up 4.4% of the ETF. Chevron is as steady as a rock, with a track record of 38 consecutive years of dividend increases. One could almost set one’s watch by it.

And if that weren’t enough, there’s ConocoPhillips (4.2%), a darling of exploration and production with a penchant for high free cash flow and an affordable dividend. Rounding out this trio of financial brawn is EOG Resources (2.6%), another stalwart in the energy sector. Together, these three companies account for 11.2% of the ETF, providing a nice, safe cushion against the volatility of the energy market.

As for consumer staples, the ETF takes a similarly discerning approach. With stakes in the likes of PepsiCo (4.3%) and Altria (4.3%), you can rest assured that this ETF’s cornerstones aren’t some fly-by-night operation. These companies have been around for what feels like forever, with decades of dividend increases under their belts. Altria, for instance, has raised its dividend for a staggeringly impressive 51 consecutive years. Hardly a risky bet, wouldn’t you agree?

And in healthcare, the ETF’s top picks include AbbVie (4.3%) and Merck (4.1%), both of which are massive players in the pharmaceutical world. AbbVie, in particular, is a Dividend King, having consistently increased its payouts for years. It’s almost as if this ETF has carefully selected the most reliable, old-school companies that are as steady as a summer’s day.

A Simple Way to Generate Passive Income from Stocks

Now, if you’re the sort of investor who spends their evenings poring over high-growth stocks in the hope of striking it rich, then Schwab’s U.S. Dividend Equity ETF might not be the dramatic rollercoaster ride you crave. It’s not going to set the world alight in terms of capital appreciation, but that’s not its raison d’être. Instead, it offers a straightforward, no-nonsense route to collect a more substantial passive income than you’d get from the S&P 500, or even from many value-focused funds.

For those with a taste for equities, rather than bonds or T-bills, the 3.7% yield is a refreshing change of pace. The 10-year Treasury rate is only marginally higher at 4.2%, but we all know T-bills offer no potential for upside, which makes them a rather dreary option in comparison. Over the last decade, Schwab’s Dividend Equity ETF has not only provided a respectable 3.7% yield but also amassed 129% in capital gains. When you factor in dividends, the total return is a rather satisfying 217.4%. It seems the key to this success isn’t the high yield, but rather the steady appreciation of the equity positions themselves.

So, all in all, the concentration of this ETF in energy, consumer staples, and healthcare isn’t a weakness; it’s its strength. If you’re an income-focused investor looking for a way to make your dividends work for you without undue risk or complexity, this might just be the financial vehicle you’ve been seeking. It’s a bit like discovering a trusty old butler who ensures your dividends arrive on time-reliable, no fuss, and most agreeable.

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2025-09-08 14:13