I own a handful of exchange-traded funds (ETFs). I think these investment funds are ideal supplemental holdings to my individual stock portfolio. They add another layer of diversification while helping me achieve my financial goals.
One ETF I plan to load up on in 2026 is the Schwab U.S. Dividend Equity ETF (SCHD 0.18%). It's one of the largest ETFs focused on dividend stocks. Here's why I plan to buy a lot more shares of this top ETF in 2026.
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A top dividend ETF
The Schwab U.S. Dividend Equity ETF has a very straightforward investment strategy. The fund aims to track the performance of the Dow Jones U.S. Dividend 100 Index, which measures the returns of the 100 best high-yielding dividend stocks. It screens companies based on several dividend quality characteristics, including dividend yield and five-year dividend growth rate.
The fund's top holding is currently Bristol Myers Squibb at 4.2%. The pharmaceutical giant pays a high-yielding dividend (4.7% current yield) that has steadily increased over the years. Bristol Myers Squibb recently raised its payment by 1.6%, extending its growth streak to 17 years in a row. The company has paid a dividend for 94 consecutive years.
NYSEMKT: SCHD
Key Data Points
Lockheed Martin is another top holding (currently ranking third at a 4.1% allocation in the fund). The defense contractor has a 2.8% dividend yield. It raised its dividend payment by 5% in October, its 23rd consecutive year of dividend increases.
The index the fund tracks reconstitutes its holdings annually to ensure it follows the top 100 high-yielding dividend stocks. At its last reconstitution in March, the fund's average holding had a 3.8% dividend yield and had increased its payment by an 8.4% average annual rate over the past five years. As a result, the fund provides investors with a nice blend of current income and growth.
An attractive investment
The Schwab U.S. Dividend Equity ETF is coming off a lackluster year. The fund was only up about 1% in 2025, significantly underperforming the S&P 500, which gained over 17%. As a result, the fund looks like a relatively more attractive investment these days compared to the broader market. The average holding in the fund trades at about 17 times earnings and a 3.7% dividend yield. That compares to the S&P 500, which fetches more than 25 times earnings and has a 1.1% dividend yield. The market's valuation is well above its historical average in the mid-teens over the past quarter-century, while its dividend yield is near its record low.
I expect the Schwab U.S. Dividend Equity ETF to deliver much higher returns in the future. That view aligns with the fund's historical returns and those of dividend growth stocks.
The Schwab U.S. Dividend Equity ETF has delivered an average annualized return of more than 10% in each of the past three-, five-, and 10-year periods, as well as since its inception in 2011. This performance aligns with the long-term returns of dividend growth stocks. Dividend growth stocks in the S&P 500 have delivered a 10.2% average annual return over the past 50 years, according to data from Ned Davis Research and Hartford Funds.
So, while most dividend stocks delivered lackluster returns in 2025, I don't expect that trend to continue. I anticipate that they'll produce returns more in line with their historical averages over the long term. That bodes well for the Schwab U.S. Dividend Equity ETF, which holds some of the highest-quality, higher-yielding dividend growth stocks.
Time to load up
The Schwab U.S. Dividend Equity ETF holds shares of 100 higher-yielding companies with excellent records of increasing their dividend payments. As a result, it can provide me with a lucrative and growing income stream. Additionally, the fund appears to be an even more compelling investment opportunity these days, following its lackluster returns in 2025, as it trades at a much lower valuation compared to the S&P 500. That's why I plan to load up on this top ETF in 2026.
