The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has emerged as one of the largest and most sought-after exchange-traded funds specializing in dividend stocks. In the past 12 months, the fund has provided investors with a significant income yield of 3.5%. Despite a lackluster return of only 0.4% last year, SCHD has rebounded dramatically, experiencing a nearly 15% surge in early 2026. This performance starkly contrasts with the S&P 500’s modest increase of less than 1% during the same period.
At the core of SCHD’s success is its investment strategy, which tracks the Dow Jones U.S. Dividend 100 Index. This index is designed to reflect the performance of 100 high-quality dividend-paying stocks, selected based on criteria that include dividend yield and the five-year dividend growth rate. The ETF offers a well-rounded exposure to the stock market, although it currently boasts a significant allocation in the energy sector, which represented 19.9% of its holdings at the end of last year. Unfortunately, this exposure negatively impacted the fund’s performance in 2025, primarily due to declining oil prices.
However, the narrative has shifted in 2026 as crude oil prices have rebounded sharply. Brent crude, a global benchmark, has surged over 15%, now exceeding $70 a barrel. Factors contributing to this rise include fears of potential supply disruptions from geopolitical tensions in Venezuela and Iran. Notably, the recent capture of Venezuela’s former president, charged with narcoterrorism, has escalated concerns. Additionally, attention is focused on the U.S. military’s escalations in the region, particularly regarding Iran.
This increase in oil prices has significantly benefited SCHD, particularly because two of its largest investments are in well-known oil companies. Chevron, which is the fund’s fourth-largest holding, comprises 4.21% of its total assets, while ConocoPhillips accounts for 4.19%. Both companies, alongside other notable energy sector holdings like SLB, EOG Resources, and Valero Energy, have witnessed substantial stock price increases this year.
Chevron has notably raised its dividend by 4%, marking a continuity of its robust growth streak that spans 39 years. Over the last five years, the company has expanded its payout at a compound annual growth rate of 6%, surpassing the S&P 500’s growth rate of 5%. With a current dividend yield of 3.9%, Chevron significantly outperforms the S&P 500’s yield of just 1.2%.
ConocoPhillips is also a strong performer with a current yield of 2.9%, having increased its dividend by 8% last year. The company aims to achieve dividend growth that places it in the top quartile of S&P 500 dividend payers.
Both Chevron and ConocoPhillips have strong financial prospects to sustain their dividend growth. Chevron projects an annual free cash flow growth exceeding 10% through 2030, assuming stable oil prices around $70 a barrel. In a similar vein, ConocoPhillips anticipates bolstering its free cash flow by $7 billion annually by 2029, nearly doubling its previous figures, further solidifying its ability to maintain its dividend growth trajectory.
The energy sector continues to be a fertile ground for high-quality dividend stocks, making SCHD’s concentrated investments particularly appealing given the current oil market rally. The ETF may remain well-positioned for delivering impressive returns for its shareholders in the long run, especially if the upward trend in dividend growth persists.
However, potential investors should approach with caution. A recent report from The Motley Fool acknowledges that the Schwab U.S. Dividend Equity ETF is not among their top recommendations at this time, suggesting other stocks may offer compelling investment opportunities likely to produce substantial returns in the forthcoming years. Past examples of significant returns from stocks in their recommendations highlight the potential rewards of strategic investing within their framework. This insight raises important considerations for those seeking to navigate their investment decisions in the current market landscape.
