The Schwab U.S. Dividend Equity ETF has recently experienced a significant surge, attributed largely to the upturn in oil prices. This fund, known for its focus on dividend-paying stocks, boasts a current yield of 3.5% over the past year and has a reputation for delivering solid returns over time.
After a lackluster performance in the previous year, where it achieved only a 0.4% return, the ETF has rebounded strongly in early 2026, witnessing an impressive 15% increase. This performance notably surpasses the S&P 500, which has struggled to rise by less than 1% this year. The catalyst behind this notable outperformance can be traced back to the current dynamics within the oil market.
The Schwab U.S. Dividend Equity ETF follows the Dow Jones U.S. Dividend 100 Index, which comprises 100 top dividend-paying stocks selected based on criteria such as dividend yield and five-year dividend growth. Despite its broad market exposure, the ETF has a significant allocation in the energy sector, amounting to 19.9% by the end of last year. This heavy tilt towards energy stocks initially hindered its performance over the last year due to falling oil prices.
However, 2026 has brought a change in fortune as crude oil prices have surged by 15%, pushing Brent crude above $70 a barrel. The uptick in oil prices can be linked to potential supply disruptions stemming from geopolitical tensions in regions like Venezuela and Iran. The situation in Venezuela has been exacerbated by the recent capture of its former president by U.S. military forces, facing charges of narcoterrorism. Furthermore, increasing tensions between the U.S. and Iran have contributed to market uncertainty, further inflating oil prices.
Two key holdings within the Schwab ETF are prominent oil companies: Chevron and ConocoPhillips. Chevron ranks as the ETF’s fourth-largest holding, comprising 4.21% of its assets, while ConocoPhillips follows closely as the sixth-largest holding with 4.19%. Both companies have demonstrated resilience in their dividend payouts. Chevron recently raised its dividend by 4%, marking 39 consecutive years of dividend growth, with a five-year compound annual growth rate of 6%. In comparison, the broader S&P 500 has shown a growth rate of 5%, showcasing Chevron’s strong performance. Additionally, Chevron’s dividend yield stands at a substantial 3.9%.
ConocoPhillips, too, has established a reputation for a high-yielding dividend, currently at 2.9%. The company raised its dividend by 8% recently and aims to grow its dividends within the top quartile of S&P 500 companies. Both oil giants are expected to maintain their ability to provide robust dividend increases, underpinned by projections of strong free cash flow growth. Chevron anticipates a more than 10% annual increase in its free cash flow through 2030, while ConocoPhillips expects to add $7 billion to its annual free cash flow by 2029.
The oil sector houses many strong dividend stocks, thus justifying the ETF’s substantial energy weighting. Given the current rally in oil prices, the ETF has benefitted significantly, delivering considerable returns to investors in 2026. With anticipated future dividend growth from its oil holdings, the Schwab U.S. Dividend Equity ETF is well-positioned to continue generating impressive returns for its investors in the long run.
