Is SCHD a Buy After Its Latest Reshuffle? Investor Breaks Down the Pros and Cons

Every year, right around this time, the Schwab US Dividend Equity ETF SCHD +0.33% ▲ goes through its annual reshuffle – out with some names, in with others, all in the pursuit of keeping its dividend lineup in top shape. This time around, the refresh comes with a bit of momentum already in hand, with SCHD already up ~11% so far this year.

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Much of the reason for SCHD’s robust returns this year is its diversification. Unlike many ETFs, it’s not overly reliant on the tech sector and thus relatively sheltered from worries of an AI bubble.

Before shifting its portfolio, SCHD’s three highest sectors were energy, consumer defensive, and healthcare. While the recent news in the Middle East has pressured the broader market, these sectors tend to be more defensive and often hold up better when conditions turn uncertain and investors look for stability.

By definition, SCHD only sources from large (i.e. stable) companies with a strong history of dividend payments. For instance, all of SCHD’s holdings are companies with at least 10 consecutive years of dividend payments, a minimum market cap of $500 million, and a three-month average trading volume of $2 million per day. A lack of debt is also looked at favorably, another lever SCHD uses to guard against volatility.

At this year’s reconfiguration, SCHD reduced its exposure to energy stocks (dropping their holdings by 8%) and increasing its ownership of health care (up 4%) and technology (a jump of 3%) companies.

Will this strategy pay off in 2026? One investor, known by the pseudonym The Sunday Investor sees pros and cons.

“I can confidently state that its strategy results in the consistent selection of high-quality dividend-paying stocks with good value characteristics,” states the investor.

Sunday Investor points out that, following the reshuffling, SCHD’s index yield remains unchanged at 3.60% (translating to 3.54% after subtracting out its 0.06% expense ratio), while its trailing price-to-earnings ratio decreased marginally from 19.31x to 18.18x.

“SCHD is now better diversified at the sector level, holds slightly cheaper stocks with better earnings durability, and has retained the solid yield and quality features that make it a good choice for dividend investors,” adds Sunday Investor.

While Sunday Investor acknowledges that some might be disappointed in the ETF’s decision to jettison certain energy names, the investor argues that it’s the right move, as the energy sector is a “high-risk” one (even when things are calm), with earnings variability over the past decade that is “by far the riskiest.

“This portfolio is much more balanced than any single one of its components, and I think that’s the angle investors should take if their goal is strong and consistent long-term returns,” Sunday Investor added.

The investor is broadly on board with how SCHD is built, but in his view, the framework isn’t without its quirks. The fund limits itself to 100 stocks, and while there is a buffer rule that helps keep strong companies from being removed too easily, that protection doesn’t apply to the top 50% yield screen.

That creates some odd outcomes. A stock that barely makes the cut can be pushed out by something as simple as a short-term price move that lowers its yield. According to the investor, adding a small buffer here – for example, expanding the screen to the top 55% – would reduce unnecessary turnover and keep more stable names in place.

Sunday Investor also questions the use of return on equity as the main measure of efficiency. Since it only looks at equity, it can swing more easily. A broader metric like return on total capital, which includes both debt and equity, would give a more balanced picture.

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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