■ ETF · September 1, 2026
SCHD: Dividend Growth Slows, Fixed Income Yields Rise
The Schwab US Dividend Equity ETF rose 27% YTD, but dividend growth slowed to 0.08% and fixed income now offers higher yields, reducing its appeal.
Performance and Valuation
The Schwab US Dividend Equity ETF (SCHD) has delivered a 27% year-to-date return, outperforming expectations. However, its valuation relative to the S&P 500 has narrowed, reducing the discount that previously made it attractive. As of the latest data, SCHD trades at a price-to-earnings ratio that is closer to the broader market, limiting the margin of safety for new allocations.
Dividend Growth Stagnation
SCHD's dividend growth has stagnated, with first-half year-over-year growth of just 0.08%. This rate now trails inflation, which has been running above 3% in recent months. For income-focused investors, this means the real purchasing power of dividends from SCHD is declining. The fund's historical dividend growth rate has been a key selling point, but recent performance suggests a slowdown.
Fixed Income Competition
Rising interest rates have pushed yields on fixed income instruments above those of SCHD. For example, 10-year Treasury yields now exceed the dividend yield of SCHD, which stands at around 3.5%. This shift reduces the relative appeal of SCHD for investors seeking income, as bonds offer comparable or higher yields with lower volatility. The opportunity cost of holding SCHD has increased.
Sector and Index Risks
SCHD's sector composition is heavily weighted towards financials, healthcare, and consumer staples. These sectors have underperformed in the current market environment, and the fund's reconstitution rules may force it to adjust holdings periodically. The narrowing valuation gap and potential sector rotation risks could temper future capital appreciation.
What it means for income investors
For income investors, the current environment presents a trade-off: SCHD offers a diversified equity income stream but with slowing growth and lower relative yield compared to fixed income. The fund's performance will depend on whether dividend growth can reaccelerate and whether equity valuations remain supportive. As always, past performance does not guarantee future results.
Reporting based on: Seeking Alpha. Figures verified against market data where available.