Is SCHD Still King? Why Dividend Equity ETFs Hold the Crown in a High-Rate World

The market's latest mood swings have investors asking: Is the Schwab US Dividend Equity ETF (SCHD) still worth its salt as a core holding? While sector-specific ETFs like XLE (energy) and XLU (utilities) have outshone it YTD, I'm here to argue that SCHD remains the bedrock of income-driven portfolios—provided you pair it with a dash of cyclical flair. Let's dive into the data and decide whether this 4% yield powerhouse deserves your trust.

Why SCHD's Foundation Still Stands

First, let's celebrate what makes SCHD the “dividend queen” of ETFs:
- A 4% Yield Machine: SCHD's trailing 12-month dividend yield of 3.91% (as of 2024) outpaces both XLE (3.34%) and XLU (2.80%). In a high-rate environment where bonds and CDs struggle, this makes SCHD a cash-flow juggernaut.
- Quality Over Quantity: SCHD screens for companies with at least 10 years of dividend growth and robust balance sheets. You're not buying just any dividend payer—you're buying the corporate aristocrats that survive rate hikes.
- Cost Efficiency: Its rock-bottom 0.06% expense ratio leaves sector ETFs (0.13% for XLE/XLU) in the dust. Over decades, this adds up to real money.

But here's the rub: YTD 2025, SCHD is down 1.58%, while XLU soared 8.97% and XLE eked out 0.57%. Why?

The Underperformance: A Sector Sprint, Not a Marathon

The numbers tell a clear story: Utilities (XLU) and energy (XLE) benefited from short-term tailwinds in early 2025. XLU thrived on rate-sensitive buying, while XLE capitalized on geopolitical energy shifts. But here's the catch: sector ETFs are sprinters, not marathon runners.

Take a step back:
- Over 10 years, SCHD's 10.65% annualized return outperformed XLE (4.76%) and XLU (10.50%).
- SCHD's volatility (2.69%) and max drawdown (-33.37%) are far more stable than XLE's 6.80% volatility and -71.54% max drop.

SCHD isn't lagging because it's weak—it's lagging because it's playing a different game. It's built for dividend sustainability, not sector bets.

Why SCHD's Diversification Wins Long-Term

The ETF holds 100 companies across 11 sectors, with heavyweights like Microsoft, Procter & Gamble, and Johnson & Johnson. This sector-agnostic approach shields investors from overexposure to volatile sectors like energy or utilities.

In a high-rate environment, this matters. Utilities (XLU) might surge when rates dip, but they're vulnerable to inflation or rising yields. Energy (XLE) is a rollercoaster tied to oil prices. SCHD, meanwhile, leans on defensive giants with pricing power and global reach—companies that adapt, not collapse, when the Fed tightens.

The Action Plan: Pair SCHD with Cyclical Stars

Does this mean you should ignore XLE and XLU entirely? Nope! But they're supplements, not staples.

Here's how to balance SCHD's stability with growth:
1. Keep 60-70% in SCHD: For its dividend punch, diversification, and low risk.
2. Add 10-20% in cyclical sectors: Use XLF (financials) or XLY (consumer discretionary) to capture growth from economic expansion. Both have outperformed SCHD in bull markets while offering higher yields than utilities/energy.
3. Avoid betting the farm on XLE/XLU: Their volatility and sector-specific risks make them better for tactical trades than core holdings.

Final Verdict: SCHD's Crown Is Still Shiny

SCHD isn't perfect—it's no get-rich-quick scheme. But in a world of Fed-induced uncertainty, its quality focus, yield, and diversification make it the “safe but sassy” core holding. Pair it with a sprinkle of cyclical ETFs, and you've got a portfolio that laughs at sector whiplash while collecting checks every quarter.

Action Items for 2025:
- Hold SCHD as your dividend anchor.
- Trim sector bets (XLE/XLU) to 5-10% of your portfolio.
- Add XLF or XLY for cyclical upside.

The market's next move? Let the sector ETFs gamble. You stick with the dividend dividend.

Remember: The best investments aren't the loudest—they're the ones that keep working for you.