Key insights
- The Schwab U.S. Dividend Equity ETF (SCHD) is outperforming the market due to its focus on stable, dividend-paying companies. Recent reconstitution and high inflows suggest continued investor interest. With concerns about inflation and geopolitical risks, SCHD's dividend yield and stable holdings may provide a relative safe haven, supporting moderate positive sentiment for US equities, particularly in the energy and telecom sectors.
An exchange-traded fund (ETF) that is beating the market by 16 percentage points right now is hard to ignore, especially with the S&P 500 down 3.7% year to date.
Thatʻs a big reason why the Schwab U.S. Dividend Equity ETF (SCHD +0.52%) has seen some $16.9 billion in net inflows over the past month, according to ETF Database.
The Schwab U.S. Dividend Equity ETF is up 12.2% year to date, while the Nasdaq Composite is down nearly 6%. That is significant outperformance. The question is, can it continue?
The Schwab U.S. Dividend Equity ETF is one of the most popular dividend ETFs on the market. With some $98 billion in assets under management, it is the second largest dividend ETF, behind the Vanguard Dividend Appreciation ETF (VIG +0.44%) with about $100 billion in assets.
The ETF tracks the Dow Jones U.S. Dividend 100 Index. This index includes 100 stocks that have maintained dividend payments for at least 10 years in a row, meet certain liquidity standards, and have the highest dividend yields and five-year dividend growth rates, among other criteria.
The index is reconstituted annually on the third Friday in March. This year, that was last Friday, March 19. On that day, there was a huge spike in inflows -- roughly $15 billion, according to ETF Database -- as investors looked to tap into the changes in the index.
Currently, as of March 23, the three largest holdings are Chevron, ConocoPhillips, and Verizon.
This dividend ETF has outperformed the market on a return basis by a wide margin, with a 12% return so far this year, but it also has a high distribution yield of 3.3% over the past 12 months. That will put income into your pocket or boost the outperformance further if reinvested back into the ETF.
With the war in Iran continuing to be a drag on already overvalued markets, along with rising gas prices and elevated inflation, investing in an ETF of stable companies that consistently pay dividends remains a smart option. Plus, this ETF was just reconstituted, adding in the best high-yield stocks right now, and swapping out those that lagged.
A great dividend ETF like the Schwab US Dividend Equity ETF should always have a place in a portfolio, but right now, its value is even greater.