$SCHD · Dividendology · 2026-11-09

SCHD, Schwab's dividend-paying equity fund, is officially doing what almost everyone thought was impossible at this time last year. In fact , if we look at the total returns, we can see that SCHD has risen by about 41.5% over the past year.

As a result, there is a question I keep seeing. Is it too late to buy "SCHD"? Because a year ago, almost everyone thought that "SCHD" was finished.

It underperformed the S&P 500 in 2025.

So, if we look at the money flows in SCHD, the amount of capital people were investing in the fund started to decrease more and more towards the end of 2025, and people eventually started to leave the fund.

Ironically, the time when this money was leaving the fund was the same time when SCHD began its strong run, rising 41.5% in 365 days. Although SCHD is certainly not known for huge years in which it achieves returns exceeding 40%, it is not entirely uncommon .

In 2013, they saw total returns of about 33%, in 2019 they exceeded 27%, in 2021 they reached about 30%, and since the beginning of this year they have exceeded 35%.

Of course, this is not the only reason people buy "SCHD". They like the fact that the initial dividend yield is much higher than the S&P 500 index. Historically, it has ranged between 3% and 3.5%, and at the height of concerns in 2025 the yield reached about 4.2%.

But for most of the past five years, it has remained close to 3.5%.

But perhaps most impressive is that over the past decade they have achieved a compound annual growth rate of dividends approaching 11%. So again , is it too late to buy "SCHD"?

I'll give you the short answer right away. The instinctive tendency is to see a stock or exchange-traded fund that has risen more than 30% in the past year and automatically assume that the opportunity has already been missed.

But SCHD has a unique feature that many overlook, which makes it radically different from most funds and most other exchange-traded funds . This is something you should understand before buying " SCHD".

But before we explain what this thing is , perhaps it would be helpful to ask ourselves: Where did SCHD’s superior performance actually come from over the past year? Was it just a coincidence? Can we expect this to continue in the future?

Well, it's no secret that SCHD had a fairly strong exposure to the energy sector at the start of this year. Therefore, I have seen many people claiming that the only reason behind SCHD's amazing performance this year is the overwhelming superiority of the energy sector.

But if we delve deeper into this matter, we will see that this is simply not true.

What you will notice when you look at these major shareholders is that we are looking at what could be called value stocks that pay dividends. In fact, these top ten shareholders contributed approximately 55% of SCHD's total earnings.

If you have been following the channel for a while, you know that SCHD follows a specific methodology in March of each year. It is not the fund managers who choose the stocks within the fund.

Again, it's a specific methodology. This is the same methodology that has been applied every year since the establishment.

Now, of course , what happens is that they select stocks from the Dow Jones American broad-market stock index , excluding real estate investment trusts. They are looking for a historical record in dividend distributions.

They are also looking for a minimum market value. They also do other things such as quality research.

But here's what people overlook when they ask the question: Is it too late to buy an SCHD fund? They overlook what happens when stocks are classified according to their return-based methodology .

Stocks that pass the initial screening are ranked according to their declared annual dividend yield , and only the top 50% are allowed to be selected.

Now, on a superficial level, it seems that all this does is pick the stocks with the highest returns. This is true, but it overlooks something very important. What he overlooks is the impact of this on SCHD in terms of assessment.

What do I mean by that? Well, when SCHD performs screening and selects only the top 50% of stocks based on reported annual returns, this has a tremendous impact on SCHD's valuation.

Think about what happens in most cases, basically. When a company's stock price rises faster than its cash dividends, its return decreases. This is basic mathematics. Therefore, since the SCHD core index filters out stocks with above-average returns and includes the return in the composite ranking, a stock can become less competitive for inclusion the further its price advances than its dividends.

Therefore, naturally , the annual review includes a measure of price discipline in the selection process.

Let's consider a hypothetical company that trades at $100 per share, earns $5 in annual profits, and pays out $4 in dividends. Its price-to-earnings (P/E) ratio is approximately 20 times, and its dividend yield is 4%.

But if the share price rises to $150 while earnings and dividends remain unchanged, the price-to- earnings ratio rises to 30 and the yield drops to approximately 2.67%. Observe what is happening.

The return decreased and the price-to-earnings ratio increased. Therefore, naturally, this is likely to be a stock that would not go into an SCHD fund with a low yield.

But along with the decline in returns, the price-to-earnings ratio increased. Now, this may still be true even if earnings increase over time, because we often see the stock price rise much faster than the rate of growth of these stocks' earnings.

Therefore , what naturally happens is that SCHD gets rid of stocks with higher earnings multiples and adds stocks with lower earnings multiples.

Obviously, this does not lead to automatic superiority in performance every year. While SCHD has performed very well from a total return perspective since its inception , perhaps equally impressive is how minimal the downturns have been in years when the market is contracting.

For example, in 2015 we see that SCHD decreased by only 0.3%. In 2018 it fell by only 5.56%, and in 2022 when the S&P 500 fell by about 20%, SCHD fell by only 3.26%. Very slight declines, if any at all .

This reassessment is a major reason behind it. This same valuation reset is why SCHD has the potential to continue to outperform and deliver outstanding performance in the future, despite having seen total returns of around 40% over the past year.

Because although many of SCHD’s stocks are currently trading at much higher valuation multiples than they were in March, we are only a few months away from SCHD undergoing its methodology again, which will naturally eliminate those stocks that have seen a significant expansion in their earnings multiples due to a marked decline in their returns.

This process of restructuring is the same reason why, even if SCHD’s core holdings are not growing with large dividend payouts, the fund as a whole can continue to increase dividends at a very strong rate thanks to the ongoing restructuring that gets rid of low-yielding stocks and adds higher-yielding stocks .

So, to be completely honest, at the time of recording this video, we are witnessing widespread sales in the market. But what historical data consistently tells us, and what we continue to see across market cycles, is that dividend growth stocks and dividend growth funds continue to outperform over time, not because they perform well in rising markets, but because they perform exceptionally well in falling markets.

Historically, non-dividend stocks have fallen by about 30% in bear markets, while dividend-growth stocks have fallen by only about 11%, which, when looking at full market cycles, leads to dividend-growth outperforming.

Therefore, if you are concerned about the possibility of a bubble, look at the historical data for the Dow Jones US Dividend 100 Index, the SCHD Fund’s baseline index. If you had bought this index at any time between 1999 and 2007, you would have outperformed the S&P 500 to this day.

That's a period of nearly 30 years in which it has outperformed the S&P 500, regardless of whether you invested in 1999 or 2007.

So, to be clear, I'm not against the S&P 500. The S&P 500 has been a great investment vehicle for many people over the years, but the valuation has certainly become more inflated, and that applies to many funds and many ETFs .

But thanks to the SCHD methodology and the annual reassessment that takes place, you don't have to look at a year in which SCHD rose by about 40% and automatically assume that it no longer represents an opportunity .

The share price could rise while the overall valuations of the companies included in the SCHD fund remain within a relatively similar range.

This is one of the many reasons why I love the SCHD box. Even with major technology companies spending most of their revenue on capital expenditures, you can sleep soundly with SCHD.