Schwab U.S. Dividend Equity ETF Just Cut Its Dividend. Time to Panic?

SCHD’s Track Record and Recent Dividend Cut

The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) is a favorite among income-focused investors, tracking the Dow Jones U.S. Dividend 100 Index, which comprises approximately 100 high-quality, large-cap U.S. stocks with a history of consistent dividend growth. 

Launched in October 2011, SCHD has amassed $68.8 billion in assets, offering a 3.97% yield and an exceptionally low 0.06% expense ratio, one of the cheapest in its class. Since its inception, SCHD has delivered a 12% annualized total return, which trails the S&P 500’s 14% compound annual growth rate, but offers stability through its diversified portfolio of dividend-paying stocks. 

Over the past year, the ETF has gained a modest 0.8%, as it i still recovering from a 10% drop following an April market scare. For the second quarter, SCHD announced a dividend of $0.2602 per share, down 5.28% from the year ago’s record $0.2747 per share payout, a rare year-over-year decline. 

Should this cut alarm investors, or does SCHD remain a reliable cornerstone investment for long-term income portfolios?

Does the Dividend Cut Signal Problems?

The year-over-year dividend reduction may spark concern, but SCHD’s historical resilience and robust fundamentals suggest it’s a temporary blip, not a structural issue. 

SCHD has a remarkable dividend growth history. Since December 2011, when it paid $0.04 per share, the payout soared to a peak of $0.2747 per share one year ago, its largest payout ever. This quarter’s cut follows that unusually high benchmark, so it skews the year-over-year comparison. However, if you look at SCHD’s total dividend growth for the first half of 2025, in reality it is up 6.4% compared to 2024, That signals continued progress toward its long-term trajectory.

Historically, it was not uncommon for SCHD to post single-quarter dividend declines in its early years. The occurred in five of its first six years, yet the fund achieved an average annual dividend growth rate of 11.5% since inception and 13% since 2018. This consistency reflects SCHD’s focus on quality companies with sustainable payouts, such as top holdings Chevron  (NYSE:CVX), ConocoPhillips (NYSE:COP), and Texas Instruments (NYSE:TXN), which anchor its diversified portfolio.

While four of its top five positions were in the same position last quarter, Merck (NYSE:MRK) jumped from 12th place to fifth.

Shuffling Sector Allocation

That reflects the rebalancing the ETF underwent in the second quarter, which should further bolster investor confidence. That’s because, in an attempt to ensure no holding exceeds the fund’s 4% cap , SCHD reduced its energy sector exposure from over 20% to 19.5% while slightly increasing allocations to healthcare and lowering them for industrials. 

This disciplined approach maintains diversification and mitigates sector-specific risks, particularly in volatile energy markets. SCHD’s 3.9% yield, nearly triple that of the S&P 500’s 1.3%, combined with a top-decile Sharpe ratio through February 2025, highlights its risk-adjusted stability, appealing to retirees and conservative investors. 

SCHD’s income trajectory remains upward, reinforcing its reliability. The Q2 cut reflects a high prior-year baseline, not a weakening foundation. SCHD’s low turnover, focus on financially sound dividend growers, and ability to weather economic challenges make it a dependable choice. The fund’s design ensures steady income, and its 6.4% year-to-date dividend growth suggests it’s on track to continue its “dividend snowball” effect through reinvestment.

Key Takeaways

The Schwab U.S. Dividend Equity ETF remains a premier choice for income investors, blending a high yield, a low expense ratio, and an rich average annual dividend growth rate since 2011. The second quarter dividend cut is a minor hiccup in its 14-year history, overshadowed by a robust 6.4% year-to-date dividend increase and a diversified portfolio of high-quality, dividend-paying stocks. 

While SCHD’s 12% annualized return lags tech-heavy ETFs, its defensive structure and top-tier risk-adjusted returns make it ideal for those seeking steady income amid market volatility. The cut stems from a record payout last year, not a systemic flaw, and SCHD’s focus on sustainable dividends ensures long-term reliability. 

Investors should view SCHD as a core holding for compounding income through reinvestment, and using it to help build up a portfolio that they can live off of in retirement.

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