The Schwab U.S. Dividend Equity ETF (SCHD 0.12%) is one of the largest and most popular ETFs focused on dividend stocks. The fund offers a high current income yield (3.5% over the last 12 months). It has also delivered robust returns over the years.
While the fund delivered an underwhelming performance last year -- it only generated a 0.4% return -- it has gone hyperbolic in early 2026, surging nearly 15%. That has vastly outperformed the S&P 500's less than 1% rise this year. Here's the secret fuel source driving its outperformance.
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A hidden fuel source
The Schwab U.S. Dividend Equity ETF tracks an index (Dow Jones U.S. Dividend 100 Index) designed to measure the performance of 100 top dividend stocks. It screens companies based on several factors, including dividend yield and five-year dividend growth rate.
The fund's 100 holdings provide fairly broad exposure to the stock market. However, it has a high sector weighting to energy stocks (19.9% at the end of last year, its largest sector allocation). The fund's high exposure to energy stocks weighed on its returns last year, as falling oil prices hurt its performance.
NYSEMKT: SCHD
Key Data Points
However, this year has been a different story. Crude prices have rallied sharply in 2026. Brent oil, the global benchmark price, has surged 15% to more than $70 a barrel. Oil has risen due to the potential for supply disruptions in Venezuela and Iran. The U.S. military captured Venezuela's former president and charged him with narcoterrorism. Meanwhile, there's growing concern about an escalating conflict between the U.S. and Iran.
Loaded with top oil dividend stocks
The rise in crude prices has been a boon for this ETF as two of its top holdings are oil companies. Chevron (CVX +3.59%) is its fourth-largest holding, accounting for 4.21% of its assets, while ConocoPhillips (COP +2.70%) ranks sixth at 4.19%. It also has meaningful weightings to SLB (2.7% of the fund), EOG Resources (2.36%), and Valero Energy (2.19%). All five of these energy stocks have surged this year:
However, this oil-fueled upside catalyst isn't why the Schwab U.S. Dividend Equity ETF holds these energy stocks. They're in the fund because they're excellent dividend stocks.
For example, Chevron recently increased its dividend by 4%, extending its growth streak to 39 consecutive years (the second-longest dividend growth streak in the oil patch). The oil giant has grown its payout at a 6% compound annual rate over the last five years (faster than the S&P 500's 5% growth rate). Chevron also offers a much higher dividend yield than the S&P 500 (currently 3.9% versus 1.2% for the broader market index). This combination of a high yield and an above-average dividend growth rate is right in this ETF's sweet spot.
NYSE: CVX
Key Data Points
ConocoPhillips also pays a high-yielding dividend that is growing at an above-average rate. The oil giant currently yields 2.9% and increased its dividend by 8% late last year. The oil company's stated goal is to deliver dividend growth within the top 25% of S&P 500 companies.
Both oil companies should have plenty of fuel to continue increasing their high-yielding dividends. Chevron expects to grow its already robust free cash flow by more than 10% annualized through 2030. That assumes oil averages around $70 a barrel. Meanwhile, ConocoPhillips expects to add $7 billion to its annual free cash flow by 2029 (assuming $70 crude oil), nearly double last year's level. That should give them plenty of fuel to continue increasing their high-yielding payouts.
Oil-fueled dividends
The oil patch is home to a plethora of top dividend stocks. That's why the Schwab U.S. Dividend Equity ETF currently has a high sector weighting. The fund's oil stock investments have been a boon this year, as a rally in the oil market has helped fuel big gains for investors in this dividend ETF. With more dividend growth ahead from its oil holdings, the fund could continue to produce high-octane returns for investors over the long haul.
