SCHD: Is There Life After Broadcom?

The Schwab U.S. Dividend Equity ETF (SCHD) has long been a cornerstone for income-focused investors seeking stability in a volatile market. However, the March 2024 rebalancing, which saw the removal of Broadcom (AVGO) from its portfolio, has sparked questions about the fund's ability to maintain its appeal in a market increasingly dominated by AI-driven growth stocks. As the year draws to a close in 2025, the question remains: Does SCHD retain its long-term resilience and dividend sustainability in a shifting economic landscape?

Sector Exposure and Strategic Rebalancing

SCHD's portfolio is designed to balance sector exposure, with a cap ensuring no single sector exceeds 25% of the fund. In the most recent quarter, the Energy sector accounted for 19.34% of the portfolio, reflecting its role as a stabilizing force amid broader market swings. This focus on energy and other defensive sectors aligns with the fund's mandate to prioritize quality companies with sustainable dividends. The removal of Broadcom-a high-growth tech stock-was a calculated move to maintain this balance, as the fund's methodology emphasizes consistent dividend growth over speculative exposure to AI-driven volatility.

Broadcom's exit, however, has not been without consequences. The company's stock has surged due to surging demand for AI chips, despite periodic volatility tied to concerns about an overhyped AI market. While SCHD's decision to exclude Broadcom may have limited short-term gains from AI tailwinds, it also shielded the fund from the sector's sharp corrections, such as Broadcom's 9% single-day drop in response to broader market jitters. This trade-off underscores the fund's defensive positioning in a market where growth-at-all-costs narratives are being reevaluated.

Dividend Sustainability: A Pillar of Resilience

SCHD's core strength lies in its dividend sustainability. The fund currently offers a trailing dividend yield of 3.6%, with a five-year compound annual growth rate (CAGR) of 12.2%. These metrics highlight its appeal to income-focused investors, particularly in an environment where traditional growth stocks face valuation headwinds. The ETF's selection criteria-prioritizing companies with strong return on equity, low payout ratios, and a history of consistent dividend increases-ensure that its holdings remain resilient even in economic downturns.

Recent analysis suggests that this strategy is paying dividends. Despite underperforming growth-oriented peers like the Vanguard Dividend Appreciation ETF (VIG) in 2025, SCHD has maintained its allure for long-term investors seeking predictable cash flows. Its beta of 0.77 further reinforces its role as a lower-volatility alternative in a market increasingly dominated by high-beta tech stocks.

Navigating a Shifting Market Environment

The broader market context in 2025 has been one of recalibration. After years of AI-driven euphoria, investors are pivoting toward more stable, cash-generative equities. This shift aligns with SCHD's strategy, as analysts note that capital is flowing into "cooling" sectors like utilities, consumer staples, and energy-areas where SCHD has significant exposure.

Moreover, Schwab's 2026 Long-Term Capital Market Expectations emphasize the enduring role of fixed income and dividend-paying equities in diversified portfolios. While SCHD is an equity fund, its focus on high-quality dividends mirrors the risk-mitigation principles of bond investing, making it a hybrid solution for investors seeking both income and capital preservation.

Expert Insights: A Fund for the Long Haul

Market commentators have largely endorsed SCHD's long-term prospects. As one analysis notes, the fund is "well-positioned to outperform" in an environment where investors seek reliable returns and lower volatility. This view is bolstered by the broader trend of capital reallocation away from overvalued tech stocks toward more defensive assets. With the AI narrative maturing and macroeconomic uncertainty persisting, SCHD's emphasis on dividend sustainability and sector balance positions it as a resilient option for 2026 and beyond.

Conclusion

The removal of Broadcom from SCHD's portfolio in 2024 was a strategic rebalancing rather than a setback. By deprioritizing speculative growth in favor of dividend stability, the fund has reinforced its role as a cornerstone for income-focused investors. While it may lack the headline-grabbing returns of AI-centric portfolios, its long-term resilience-backed by robust dividend metrics and a diversified sector approach-makes it a compelling choice in a market increasingly defined by caution and recalibration. As 2025 closes, the answer to the question "Is there life after Broadcom?" appears to be a resounding yes.