SCHD: Dividends Are Still A Losing Hand
Summary
SCHD continues to underperform the S&P 500 in 2025 due to its lack of exposure to high-growth tech and AI sectors. Q1 2025 data shows SCHD's top holdings had significantly lower revenue and earnings growth compared to S&P 500 leaders. This structural disadvantage stems from SCHD's focus on mature, dividend-paying companies, missing out on the market's primary growth drivers. Investors seeking capital appreciation from current market trends may find SCHD unsuitable, while it remains an option for income and diversification.
SCHD: Dividends Are Still A Losing Hand in the Growth Market
Publication Date: June 23, 2025
The Schwab U.S. Dividend Equity ETF (SCHD) continues to demonstrate a structural disadvantage in the current market environment, particularly when juxtaposed against the S&P 500's performance. As of mid-2025, SCHD remains poorly positioned to capture the dominant growth drivers that are fueling broader market outperformance. Its inherent design, which prioritizes mature, dividend-paying companies, systematically excludes the high-growth mega-cap technology stocks and artificial intelligence (AI) innovators that have become the primary engines of market appreciation.
Underperformance Confirmed by Q1 2025 Data
Recent first-quarter 2025 data starkly illustrates this underperformance. An analysis of SCHD's top 10 holdings reveals a significant disparity in fundamental growth metrics compared to the leading constituents of the S&P 500. SCHD's top holdings collectively reported revenue growth of approximately 5% and earnings growth of 7%. In stark contrast, the top-performing companies within the S&P 500, largely comprising technology and AI giants, posted impressive revenue growth of 21% and earnings growth of 26% over the same period. This substantial gap underscores SCHD's inability to participate meaningfully in the sectors experiencing the most robust expansion.
Structural Limitations in a Growth-Driven Market
SCHD's investment methodology, which screens for companies with a strong history of dividend payments and financial health, inherently leads to a portfolio concentrated in established, often slower-growth industries. While this approach can offer stability and income, it simultaneously creates a significant blind spot for the disruptive innovation and rapid expansion seen in sectors like technology, semiconductors, and AI. The market's current leadership is defined by companies that are reinvesting heavily in growth, often foregoing or offering minimal dividends in favor of capital appreciation. This fundamental divergence in investment philosophy is the root cause of SCHD's structural performance gap.
Market Context and Implications
The prevailing market narrative in 2025 continues to be dominated by technological advancement and the transformative potential of AI. Investor capital is flowing disproportionately into companies at the forefront of these trends, driving their valuations higher. This phenomenon, often referred to as 'growth at any price' in certain segments, leaves value-oriented or dividend-focused strategies like SCHD struggling to keep pace. The concentration of market gains in a relatively small number of mega-cap tech stocks means that ETFs lacking significant exposure to these names will naturally lag the broader market indices like the S&P 500, which are market-cap weighted and thus heavily influenced by these dominant players.
Actionable Insights for Investors
For investors considering SCHD, it's crucial to align its purpose with their investment objectives. If the primary goal is capital appreciation driven by market-leading growth, SCHD may not be the optimal choice. Investors seeking exposure to the current market leaders in technology and AI should consider broader market index funds (e.g., SPY, VOO) or technology-specific ETFs (e.g., XLK, QQQ). SCHD remains a viable option for those prioritizing:
- Income Generation: Its consistent dividend payments can be attractive for income-focused portfolios.
- Lower Volatility: Mature, dividend-paying companies often exhibit less price volatility than high-growth stocks.
- Diversification from Growth: It can serve as a diversifier for portfolios heavily weighted towards growth stocks, providing exposure to different market segments.
However, for investors whose benchmark is the S&P 500's total return, SCHD's current positioning suggests continued underperformance as long as the market's leadership remains concentrated in high-growth, non-dividend-paying tech and AI companies. Re-evaluating portfolio allocations to ensure alignment with prevailing market trends is essential for achieving desired investment outcomes.