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I must admit as a SCHD holder I have questioned this funds decisions this year!
For years, the Schwab U.S. Dividend Equity ETF (SCHD) was the undisputed king of the "dividend growth" community. It was the rare fund that offered a high yield, double-digit dividend growth, and price appreciation that actually kept pace with the S&P 500.
But if you look at your portfolio today in early 2026, you might be asking: Is the magic gone?
After a lackluster 2025 where SCHD returned roughly 1% while the S&P 500 soared over 17%, the frustration is palpable. Let’s look at why the "magic" seems to have vanished and whether it’s actually just a hidden opportunity.
The "Vanishing Act": Why Performance Lagged
To understand why SCHD has struggled, you have to look under the hood. The fund’s strategy is based on a strict mechanical index (the Dow Jones U.S. Dividend 100). Lately, that math has worked against it for three main reasons:
The AI-Shaped Hole: SCHD’s 10-year dividend history requirement means it misses almost all the "Magnificent Seven" and AI-fueled growth stocks. While the S&P 500 was riding the Nvidia rocket, SCHD was holding steady with "boring" companies.
Sector Heavyweights: Following its 2025 reconstitution, the fund became heavily weighted in Energy, Consumer Staples, and Health Care. These sectors faced headwinds last year—ranging from fluctuating oil prices to new trade tariffs that hit staples particularly hard.
The Yield Competition: With interest rates remaining a factor, traditional dividend stocks have had to compete with "risk-free" bonds. When you can get 4-5% on a T-Bill, a 3.8% dividend yield feels less like "magic" and more like "math."
Is the Magic Actually Gone?
If "magic" means beating the S&P 500 every single year, then yes—it’s gone. But if magic means quality at a reasonable price, SCHD might actually be more attractive now than it was two years ago.
1. Valuation vs. The Market The S&P 500 is currently trading at over 25x earnings. Meanwhile, SCHD’s holdings are trading closer to 17x earnings. You are essentially buying high-quality cash flow at a 30% discount compared to the broader market.
2. The Reversion to the Mean Investment history is a series of rotations. Tech cannot lead forever. When the market eventually rotates back into "Value" (for example, during a cooling AI narrative or a defensive economic shift), SCHD is positioned to be the primary beneficiary.
3. The Growing Income Stream Even in a "bad" year, SCHD increased its payout. If you are a long-term income investor, the share price "flatlining" is actually a gift—it allows you to reinvest your dividends at a higher yield, building a larger "snowball" for the future.
The Verdict
While SCHD has certainly lost its momentum, has it lost its magic? What do you think? Are you holding strong, or have you moved your capital into growth ETFs or higher-yielding alternatives? Leave a comment below and let us know your strategy for 2026!
