Why the Schwab Dividend ETF (SCHD) Is losing its edge to Vanguard

The Schwab U.S. Dividend Equity ETF (SCHD) has historically been the benchmark for dividend aficionados. It boasts a track record of impressive dividend growth, a robust yield, consistent strong returns, and low fees—qualities that investors treasure.

However, its recent performance has disappointed; it’s been significantly underperforming. Over the last three years, SCHD has emerged as one of the less favorable choices among prominent dividend ETFs, lagging behind the Vanguard Dividend Appreciation ETF (VIG), Vanguard High Dividend Yield ETF (VYM), and iShares Core Dividend Growth ETF (DGRO) by considerable margins.

With its performance metrics, yield, and Morningstar rating no longer standing out, investors face a challenging question: Should one consider moving away from SCHD?

Launched in 2011, SCHD was designed with a clear objective: to focus on top-tier dividend stocks. Its strategy involved assessing dividend growth, yield, and quality to construct a portfolio of 100 stocks that complied with a rigorous set of criteria.

For nearly a decade, it excelled. In fact, SCHD consistently ranked in the top third of Morningstar’s Large Cap Value category for nine consecutive years—an impressive feat in the dividend ETF arena.

This success secured SCHD a prestigious 5-star Morningstar rating for many years, while its total assets under management (AUM) surged to over $71 billion, positioning it as the second-largest dividend ETF globally, surpassed only by Vanguard’s VIG.

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Changes began in 2023, coinciding with the rise of technology stocks and the so-called Magnificent 7. Since then, dividend ETFs have been largely overlooked.

Nevertheless, SCHD has been particularly lacking compared to its dividend ETF counterparts. What led to this decline?

• The 9% allocation to technology stocks in SCHD versus about 35% in the S&P 500 has significantly hindered its performance: The tech sector has been the primary engine behind the S&P 500’s rise. The Schwab Dividend ETF has struggled to keep up, especially with the influence of the “Magnificent 7.”

• Investments in lagging sectors like energy and staples: Following its May rebalance, SCHD made considerable investments in these two areas, which have been among the least successful sectors in 2025. With more than 50% allocated to some of the year’s worst-performing sectors, its performance has suffered.

• Minimal exposure to growth stocks: Per FactSet data, growth stocks comprise 56% of the S&P 500, while SCHD consists of a mere 0.27% in growth.