To The Moon

As I witnessed the rally and selloff in the US market semiconductor and storage sectors’ stocks, I made a mental note to divest a little more from equity into ETF; especially Income ETF.

One of the ETFs that I have been monitoring for a while is $Schwab US Dividend Equity ETF(SCHD)$.

Why SCHD ?

Well, it functions as a core defensive income play by targetting (a) capital appreciation, (b) fundamental financial health, and (c) robust payout growth, tracking the Dow Jones US Dividend 100 Index.

Below are reasons why I like this ETF.

(1) Core Metrics & Performance

• Dividend yield: approx. +3.25% (SEC/TTM yield hovers near +3.3%)

• Expense ratio: 0.06%

• Historical dividend growth: 10-year compound annual growth rate (CAGR) of over +10.0%, although short-term growth rates have moderated closer to 4–7.5%.

• Consecutive payout growth: Approaching its 15th consecutive year of dividend increases.

(2) Index Methodology & Quality Screens

SCHD avoids chasing risky, ultra-high yields. Instead, it uses a strict multi-factor screening process for its ~100 holdings:

• Requires a minimum of 10 consecutive years of dividend payments.

• Ranks candidates using a composite score of (i) cash flow-to-total debt, (ii) return on equity (ROE), (iii) dividend yield, and 5-year dividend growth rate.

• Reconstituted annually in June, favoring stable, cash-generative businesses.

Thanks to its rigourous Dow Jones US Dividend 100 methodology screening hard for payout durability, SCHD has grown into a $94.9 billion juggernaut.

I think, the importance of strong cash flow can never be overrated.

Look no further than $Meta Platforms, Inc.(META)$ - where massive AI spending caused free cash flow to drop -91%, collapsing from $8.55 billion down to a mere $784 million in its latest quarter.

As a result, there was an exodus on Thu, 30 Jul 2026 with the stock falling -7.95% by 4pm. (see below)

(3) Defensive Sector Allocations

SCHD provides strong market ballast during market rotations (such as pullbacks in high-multiple tech or AI-driven equities) due to heavy weightings in resilient, inelastic sectors:

• Healthcare (20.8%)

• Consumer Defensive / Staples (20.6%)

• Energy (14.1%)

Top Holdings include:

• $Abbott Laboratories(ABT)$

• $Merck(MRK)$

• $UnitedHealth(UNH)$

• Amgen Inc (AMGN).

• Procter & Gamble (PG).

To Note:

SCHD carries 3 main risks:

• It is sensitive to broader interest rate shifts. With a high probability of US Fed adjusting its interest rate higher, this could be a bane for SCHD, dragging down its stock price.

• Comparatively speaking, it offers a lower starting payout compared to high-yield bonds or covered-call funds.

• Its dividend increases have slowed down compared to past double-digit rates.

In reverse, its 3 positive features:

• It offers exceptional tax efficiency for an ETF.

• With a low cost expense ratio of only 0.06%, what more can an investor ask for ?

• More importantly its (1) strong compounding track record, and (2) lower volatility (beta of only approx 0.70) when compared to the broader market.

SCHD vs S&P 500 - Past 12 Months

Past 12 Months Perf.

Income ETF.

SCHD delivered a robust +26.08% return over the past 12 months, mounting a strong breakout that began in mid-January 2026. (see above)

Following the onset of Middle East tensions on 28 Feb 2026, the fund demonstrated remarkable resilience.

It absorbed broader market volatility with only a minor pullback through March & April 2026, maintaining most of its gains before steadily climbing toward its 12-month high by late July 2026.

Compare against S&P 500.

In contrast, the $S&P 500(.SPX)$ recorded a +17.32% gain over the same 12-month span. (see above)

The broader index proved far more vulnerable during the initial geopolitical shock in late February 2026, suffering a steep drawdown through March & early April 2026, that briefly brought its cumulative return close to zero.

Although the S&P 500 recovered aggressively into the summer, SCHD preserved a steady 8.76% point lead, showcasing the protective value of its defensive, high-dividend basket during market turmoil.

“Mystery” ETF.

Just when I thought this is it, along came another Income ETF that has admittedly rattled me a little - honestly.

This competitor is built on a different screen that has left SCHD roughly 5% points behind per year over the last 5 years, so much so that it deserves a look (now!)

What else to know ?

This competing ETF :

• Rewards a decade of dividend payments, maintains a high cash-flow-to-debt, and return on equity.

• It holds a portfolio heavy in (1) Energy, (2) Consumer staples, and (3) Legacy pharma. As much as I hate to admit it, the sectors are aligned with SCHD, no ?

Top holdings include:

• Qualcomm (QCOM) 6.74%.

• Texas Instruments (TXN) 5.90%,

• UnitedHealth (UNH) 5.09%.

• Chevron (CVX) : 3.83%,

• Coca-Cola (KO) : 3.96%.

Above composition throws off reliable income with a trailing 12-month distributions of $1.048 per share.

It is equally interesting to note that structurally it does not have any mega-cap technology names which have driven index returns since 2020.

NVDA, MSFT & AAPL do not clear SCHD’s screen, and that omission is the entire story of the last 5 years.

The mystery Income ETF is none other than - $Fidelity High Dividend ETF(FDVV)$.

The Rewards Gap.

Over the trailing 5 years, (see above)

• SCHD returned +32.54% on a total-return basis, or roughly 6.51% annualized .

• FDVV) returned +66.57% over the same span, or roughly 13.31% annualized.

• The 6.8 point annualized gap is not a rounding artifact from picking a lucky start date.

• It reflects a methodology difference that let FDVV hold names SCHD was rules-bound to skip.

The screen for this one weights yield plus payout quality but keeps mega-cap technology in the eligible universe.

FDVV's selection process balances strong dividend payouts with financial health, while still allowing large technology companies to be included.

As of April 2026, FDVV top holdings also included:

• Nvidia (NVDA) 6.84%.

• Apple Inc (AAPL) 5.69%.

• Microsoft (MSFT) 4.49%.

• Broadcom (AVGO) 3.49%.

The above 4 companies make up 20.51% of the fund., the “engine” behind FDVV’s 6.8 point edge: the same dividend-quality wrapper, minus the rule that fenced off the market’s biggest compounders.

What all this means.

SCHD currently offers a higher dividend yield than FDVV.

It pays about 3.2% compared to FDVV’s 2.8%.

For investors focused on generating immediate cash flow rather than overall portfolio growth, the extra 0.4% payout adds up to meaningful income on a large investment.

Conversely, FDVV is built for total growth, taking a slightly lower yield in exchange for higher share price gains driven by tech stocks.

ETFs’ Expenses.

When it comes to expenses, the fee difference is the “easy” part:

• FDVV charges 0.15% vs SCHD’s 0.06% - an investor pays 2½ times (or 250%) as much.

• On a $100,000 position, that’s about $90 more per year.

• This trade-off is relatively easy to accept as long as the higher overall returns persists.

Unfortunately, this year, the situation has flipped: (see above)

• YTD, SCHD is up +20.48% while FDVV has gained +10.06%.

• This comes as megacap tech stocks slowed down in 2026, value and defensive dividend stocks took the lead, a shift where SCHD typically shines.

• While FDVV usually performs better over the long run, it also faces steeper downturns that SCHD manages to avoid.

Summary.

The bottom line is SCHD is not broken.

In fact in 2026 , it leads over FDVV for the first time after trailing for the past 3 years, proving the case for keeping some.

However, if the an investor owns a dividend fund is total return with income as a bonus, then FDVV’s $9.18 billion in assets, tech-inclusive screen, and 5-point annualized edge over the last five years deserves a hard look.

Evaluate it against one’s own tax situation and time horizon; the swap makes the most sense for long-horizon holders who can absorb the years FDVV lags.

Alternatively, what about a blended allocation, say 60/40 SCHD/FDVV, keeps most of the current income while adding the mega-cap tech exposure SCHD structurally cannot ? What do you think ?

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• Do you think SCHD is a better ETF than FDVV ?

• Do you think now would be a good time to add some FDVV while AI-related semiconductor stocks are falling ?

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