The Schwab U.S. Dividend Equity ETF has emerged as a top choice for investors seeking reliable passive income, according to recent analysis highlighting its strong performance track record and competitive dividend yield. The exchange-traded fund, which trades on the NYSE under the ticker SCHD, offers investors exposure to approximately 100 carefully selected dividend-paying stocks with at least 10 years of consistent payouts. This Schwab U.S. Dividend Equity ETF strategy focuses on high-quality companies that demonstrate both income generation and long-term growth potential.
Recent data from Morningstar shows the fund delivering a dividend yield of 3.5%, significantly outpacing the 1.1% yield of comparable S&P 500 index funds. The ETF has posted impressive average annual returns of 10.91% over five years and 13.55% over the past decade, according to data as of February 2026.
Why Dividend Stocks Outperform Over Time
Historical research from Ned Davis Research and Hartford Funds demonstrates the power of dividend investing for wealth accumulation. Between 1973 and 2024, dividend growers and initiators delivered average annual total returns of 10.24%, compared to just 4.31% for non-dividend-paying stocks. Additionally, companies that shrank or eliminated dividends actually posted negative returns of -0.89% during this period.
The data underscores why dividend-focused strategies can generate substantial passive income while building long-term wealth. When investors reinvest dividends into additional shares, the compounding effect accelerates portfolio growth over time.
Fund Composition and Top Holdings
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 index, maintaining a diversified portfolio across multiple sectors. Recent data shows the fund’s top 10 holdings account for approximately 42% of total assets, led by Lockheed Martin at 4.60%, Bristol-Myers Squibb at 4.29%, and Texas Instruments at 4.27%.
Other major positions include energy giants Chevron and ConocoPhillips, pharmaceutical leader Merck, consumer staples companies PepsiCo and Coca-Cola, telecommunications provider Verizon, and tobacco company Altria. This blue-chip stock composition provides stability and consistent income generation.
Diversification Beyond Technology Reduces Risk
Unlike many growth-oriented funds heavily concentrated in technology stocks, this dividend ETF maintains just 10% exposure to the tech sector. Meanwhile, energy companies represent 20% of assets and consumer defensive stocks account for 19% of holdings, according to recent fund disclosures.
This balanced sector allocation helps insulate investors from potential volatility in specific industries. However, it also means the fund may underperform during periods when technology stocks surge, as evidenced by its slightly lower returns compared to broad market indices during the recent tech rally.
Low Fees Enhance Long-Term Returns
The fund’s expense ratio stands at just 0.06%, meaning investors pay only 60 cents annually for every $1,000 invested. These minimal fees allow more capital to remain invested and compounding over time, a significant advantage for long-term wealth building through dividend reinvestment strategies.
Investors should note that while the Schwab U.S. Dividend Equity ETF has delivered solid performance since its inception in October 2011, past returns do not guarantee future results. The fund’s focus on established dividend payers may result in different performance characteristics compared to growth-oriented investments, particularly during market conditions favoring high-growth companies over income-generating stocks.
