šØ SCHD JUST CHANGED!
Here Is Everything You Need To Know. š°
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šØ SCHD Just Changed
Every year in March, the dividend ETF SCHD undergoes reconstitution.
This is the one time per year where:
Stocks get added and removed
Sector allocations shift
Dividend characteristics change
And in 2026ā¦
The changes were significant.
Today, we will be reviewing everything you need to know about the 2026 SCHD reconstitution.
ā ļø Dangerous Territory
In December of 2025, I posted an in-depth analysis of SCHD, and why abandoning the popular ETF would likely be a massive mistake in 2026.
If you missed it, you can read that here.
While there was a multitude of topics discussed in that article, one of the most important topics was the U.S. equity risk premium, which is essentially the S&P 500 earnings yield minus the 10-year Treasury yield.
In simple terms, it answers one critical question:
How much extra return are investors being paid to own stocks instead of ārisk-freeā government bonds?
According to this chart, the answer is:
Almost nothing or even negative.
Basically, investors were taking on more risk for less potential return.
So why was SCHD positioned to perform so well in light of this?
Because SCHD isnāt just āa dividend ETFā-
Itās actually a systematic valuation strategy on top of being a dividend fund.
Letās break down what this means.
āļø Methodology
SCHDās annual reconstitution is not determined by fund managers.
It is completely determined by their methodology, which you can see below.
In short, the methodology is:
Applying quality filters
Ranking stocks by dividend yield
Rebalancing annually
The key is ranking stocks by yield.
Why?
Because dividend yield is heavily influenced by price.
Dividend yield isnāt just about income, itās also a function of price.
When a stockās price declines, its yield rises
When a stockās price increases, its yield falls
Itās obvious, but think about what that does in terms of valuation for SCHD.
Stocks that have sold off, but still maintain strong fundamentals, naturally rise to the top of the rankings.
In fact, we can see that after the recent reconstitution, the top 20 holdings in SCHD have an average forward P/E multiple of 15.33!
So during a time where valuation multiples were stretched and risk was increasing, SCHD was naturally rotating capital to keep its holdings at a reasonable valuation.
This āderiskedā SCHD from the fact that the US equity risk premiums were in negative territory.
Naturally, the results were amazing.
SCHD has now outperformed the S&P 500 by around 16% year to date!
But it hasnāt just outperformed the S&P 500, it outperformed its close dividend ETF peers, like DGRO, VYM, and VIG.
šÆ What Changed in 2026?
This year, SCHD:
Added 25 stocks
Removed 22 stocks
Here are the 25 stocks that were added:
And here are the 22 stocks that were removed:
Thereās a multitude of major moves that we could point out, such as the addition of UnitedHealth Group, or the removal of Abbvie and Cisco-
But the biggest takeaway is the sector rotation.
2025 was different for SCHD, in a sense that historically speaking, SCHD has typically had a large allocation to financials and a small allocation to energy.
2025 was the complete opposite.
SCHD went from a 5.7% allocation to energy in 2020, to over 20% before the 2026 reconstitution.
And while financials were 24.8% of the fund in 2020, it dropped to just 9.7% in 2025.
However, SCHD has a new look after the recent reconstitution:
After a strong run, many energy stocks saw their yields compress, which pushed them down in SCHDās rankings and led to several removals.
At the same time, financials had a much weaker year.
That decline in price pushed yields higher, making them far more attractive within SCHDās model.
The end result was a near 8% reduction in the energy allocation.
That capital went into:
Financials
Communication services
Consumer staples
Health care
Technology
This is a very different look from 2025.
š The Hidden Dividend Growth
SCHD recently announced their Q1 2026 dividend, and itās around 3.3% higher than 2025ās Q1 dividend.
But it is important to remember that SCHDās high dividend growth isnāt just from the underlying holding growing payouts-
But from the annual reconstitution dropping the low yielders and adding the high yielders.
This essentially causes āartificial dividend growthā.
Whatās even more exciting, is the fact the holdings added during the reconstitution have higher historical dividend growth, with lower payout ratios.
ā” Reality
The reality for SCHD is this:
Sentiment around this fund changes rapidly.
Everyone loves the fund right now, but that wasnāt the case just a few months ago.
But over full market cycles, that discipline is exactly what has driven:
Strong total returns
Exceptional dividend metrics
Lower volatility than the broader market
And over time, thatās how you build a portfolio that compounds without needing to time or predict the market.
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