You thought dividend ETFs were dull? Think again.
The $88 billion Schwab US Dividend Equity ETF has delivered a 16% total return so far in 2026, while the S&P 500 has barely nudged 0.7% over the same period. In Morningstar’s ranking of more than 3,600 large‑cap funds, Schwab’s offering sits at No. 4 – a meteoric jump from its average 12.6% annual return over the previous three years.
What changed? The fund’s blend of high‑yield, high‑quality large caps is now benefiting from a macro‑shift away from speculative tech and toward “hard‑hat” industries that thrive in geopolitical tension and rising commodity prices.
Four stocks dominate the fund’s top‑four holdings: Lockheed Martin, ConocoPhillips, Verizon Communications, and Chevron. Each posted more than 20% gains in 2025, driving the ETF’s overall performance.
Defense (Lockheed Martin): The ongoing U.S.–Iran conflict has spurred defense spending, boosting order books for aerospace and missile systems. The sector’s dividend yield averages 2.8%, with a forward P/E under 15, indicating room for earnings upside.
Energy (ConocoPhillips & Chevron): Oil breached $90 per barrel, the first level above the psychological barrier in two years, after Kuwait trimmed output. Higher crude prices translate directly into higher cash flows for integrated producers, supporting dividend growth.
Telecom (Verizon): As businesses brace for potential stagflation, reliable cash‑flow generators like telecoms become defensive shelters. Verizon’s 5‑year dividend growth streak adds a stability premium.
These sectors are collectively classified as “hard‑hat” because they build the physical infrastructure of the economy and often enjoy government contracts that are less sensitive to cyclical swings.
While Schwab’s dividend fund is riding the hard‑hat wave, its closest rivals have taken a more balanced or tech‑leaning tilt.
The result is a widening performance gap: VYM is up only 5% YTD, and DVY lags at 3%. Investors seeking dividend yield plus momentum are increasingly gravitating toward Schwab’s blend of yield and sector‑specific growth.
Looking back at the 2018‑2020 period, dividend‑focused ETFs lagged the S&P 500 by an average of 2.3% per year when AI‑driven mega‑caps like Nvidia and Microsoft drove the index. However, during the 2022‑2023 inflationary spikes, dividend funds outperformed by 1.8% annually, as investors fled growth‑risk and sought cash‑flow stability.
The current cycle mirrors 2022‑23: heightened geopolitical risk, higher commodity prices, and a cooling of AI hype. History suggests that the outperformance can be sustainable if earnings growth in hard‑hat sectors remains above 6% YoY and dividend payout ratios stay under 70%.
Relative Strength Index (RSI): The ETF’s 14‑day RSI sits at 68, indicating strong upward momentum but approaching overbought territory.
Moving Average Convergence Divergence (MACD): The MACD line crossed above the signal line in early February, a bullish crossover that often precedes further gains.
Dividend Yield vs. Payout Ratio: Current yield is 3.2% with an average payout ratio of 62%. Both are within comfortable ranges, allowing room for dividend hikes.
Valuation: The fund’s weighted average forward P/E is 13.5, well below the S&P 500’s 18.9, suggesting a discount premium that can attract value‑oriented capital.
Bull Case: Continued escalation in Middle‑East tensions fuels defense contracts; oil stays above $85/bbl, supporting energy margins; telecoms benefit from steady subscription growth. Combined, these drivers could push total return above 140% by year‑end, delivering double‑digit yields and capital appreciation.
Bear Case: A rapid de‑escalation reduces defense spending; a surprise oil price collapse below $70/bbl erodes energy cash flow; rising interest rates increase the cost of capital for dividend payers, compressing valuations. In that scenario, the ETF could stall around 8% YTD and underperform peers.
Portfolio Action: Allocate 5‑10% of core equity exposure to Schwab US Dividend Equity for yield plus upside. Pair with a small allocation to growth‑oriented ETFs (e.g., QQQ) to maintain diversification across the AI‑driven and hard‑hat themes.