Summary of "Everyone Hates SCHD Right Now. Is It Finally Time to Buy?"

Everyone Hates SCHD Right Now. Is It Finally Time to Buy?

ETF Overview: SCHD (Schwab U.S. Dividend Equity ETF)

Ticker: SCHD
Launched: Late 2011
Strategy: Passive, rules-based dividend strategy focusing on quality companies with strong cash flow, low debt, high dividend yields, and dividend growth.
Historical Performance:
- Outperformed the S&P 500 over its first 11 years, including a defensive outperformance in 2022 (SCHD down ~3% vs. S&P 500 down ~20%).
- Dividend growth compounded at a double-digit rate for much of its history.
- Since late 2022, SCHD has lagged significantly: S&P 500 nearly doubled, SCHD up only ~20%, flat over the last year.
Current Dividend Yield: Approximately 4%, highest in several years.
Volatility: Beta ~0.73 (20-30% less volatile than S&P 500 over last 5 years).

Portfolio Characteristics & Holdings

Top 10 Holdings: Represent about 40% of the portfolio; largest position is Amgen (~4.6%).
Sector Exposure:
- Technology: ~8% (compared to ~30% in S&P 500).
- Heavy in defensive sectors such as Healthcare, Consumer Staples, and Energy.
Notable Holdings: Amgen, Cisco, Coca-Cola, Chevron, Pepsi, Lockheed Martin, Verizon, Home Depot, Altria, Texas Instruments, EOG Resources, Valero, Fastenal.
Exclusions: No major high-growth tech stocks like Nvidia, Meta, Google, Amazon, or Tesla.
Dividend Safety Scores (Simply Safe Dividends rating 0-100):
- 65% of income from “safe” or “very safe” rated stocks.
- 27% from borderline safe payers.
- 6% from unsafe or very unsafe stocks (≥50% chance of dividend cut over a cycle).
Dividend Growth: Has slowed recently but remains generally stable.

Investment Methodology (SCHD Stock Selection)

SCHD evaluates companies annually (reconstitution in March) based on four fundamental factors:

Free cash flow to total debt ratio — prefers higher free cash flow and lower debt.
Return on equity — measures profitability and capital efficiency.
Dividend yield — higher yields are preferred.
Five-year dividend growth rate — faster growth is favored.

A composite score ranks companies, selecting the top 100 stocks that fit these criteria.

Market & Macroeconomic Context

SCHD’s recent underperformance is linked to:
- Market favoring growth and tech stocks, especially AI-related companies.
- S&P 500 concentration in top 10 stocks (~40%) heavily weighted in tech.
- Rising interest rates reducing the attractiveness of some high dividend stocks.
- Inflation and slowing economy impacting real economy sectors where SCHD is concentrated.
Consumer staples stocks (e.g., General Mills) face earnings pressure and stock price declines due to inflation and changing consumer behavior.
Current market valuations:
- S&P 500 forward P/E near historic highs, comparable to dot-com bubble levels.
- Tech sector P/E expanded from ~20x to over 30x earnings recently.
- SCHD stocks generally have lower valuations and yields above their 5-year averages, indicating potentially undervalued or reasonably priced stocks.

Risk and Performance Metrics

SCHD’s beta (~0.73) indicates lower volatility and defensive characteristics.
Dividend safety ratings suggest a low risk of widespread dividend cuts among SCHD holdings.
Recent market moves show potential rotation into defensive dividend stocks as tech pulled back (e.g., Nasdaq down 4%, SCHD flat).

Recommendations & Outlook

Not a momentum or growth play: SCHD is a quality dividend income strategy that tends to underperform when growth/speculation is favored.
Potential Opportunity: Current pessimism and valuation discrepancies may present a buying opportunity for long-term income-focused investors.
Suitability: Best for investors seeking disciplined, rules-based exposure to high-quality dividend payers with reasonable valuations and moderate dividend growth.
Caution: SCHD will likely continue to lag during AI/tech-driven bull markets but may catch up when market rotations favor cash flow and valuation again.

Tools & Resources

The presenter uses Simply Safe Dividends website and portfolio tracker to analyze SCHD’s holdings, dividend safety, diversification, and valuation.
A free trial of Simply Safe Dividends is offered for portfolio tracking and dividend research.

Disclaimers

The content is educational and not financial advice. Viewers are encouraged to do their own research. Simply Safe Dividends offers tools for independent portfolio analysis.

Presenter

Brian Bolinger, Simply Safe Dividends channel

Summary

SCHD, once a top dividend ETF, has recently lagged due to market rotation favoring high-growth tech and AI stocks, rising interest rates, and inflation pressures on defensive sectors. However, its portfolio remains fundamentally strong with high dividend safety, attractive yield, and reasonable valuations. For investors focused on long-term income and quality, the current market environment may present a buying opportunity despite short-term underperformance.