Why Schwab U.S. Dividend Equity ETF (SCHD) Outperforms in a Low-Yield Era: A Value Investing and Dividend Reliability Perspective

In an era where traditional fixed-income assets struggle to generate meaningful returns, income-focused investors are increasingly turning to equities for yield. The Schwab U.S. Dividend Equity ETF (SCHD) has emerged as a standout performer in this environment, blending value investing principles with a disciplined approach to dividend reliability. As of November 2025, SCHD offers a 3.8% yield-nearly triple the S&P 500's average of 1.2%-while maintaining a defensive portfolio structure that mitigates downside risk in volatile markets. This article examines why SCHD outperforms in low-yield environments, focusing on its alignment with value investing and its resilience during market uncertainty.

A Value-Driven Approach to Dividend Investing

SCHD's strategy is rooted in selecting high-quality companies with a proven track record of dividend growth. The fund prioritizes firms that have increased dividends for at least 10 consecutive years, excluding real estate investment trusts (REITs) to focus on industrial and consumer staples. This approach ensures exposure to companies with strong balance sheets, consistent earnings, and a commitment to shareholder returns. According to a report by Morningstar, SCHD's emphasis on "fundamental quality" over mere dividend yield has historically outperformed traditional dividend aristocrat indices.

The fund's sector allocation further reinforces its value orientation. Energy (19.69%), Consumer Defensive (17.94%), and Health Care (17.46%) dominate its holdings, reflecting a defensive tilt that contrasts with high-yield alternatives like the Vanguard High Dividend Yield Index Fund (VYM), which allocates heavily to cyclical sectors like Technology and Financials. This composition proved critical during the 2020 bear market, where SCHD captured only 85% of the Russell 1000 Value Index's downside, showcasing its ability to cushion losses during downturns.

Dividend Reliability in Uncertain Markets

SCHD's dividend reliability is a cornerstone of its appeal. With a 10-year average annual return of 11.40% and a compound annual growth rate (CAGR) of 11.94% from 2020 to 2025, the ETF has demonstrated resilience even as interest rates fluctuated according to data. Its top holding, Merck (4.61% of assets), exemplifies the fund's focus on stable, cash-generative industries as noted by 24/7 Wall St.. While SCHD underperformed in 2024 and 2025-returning -0.25% excluding dividends-this was largely due to its limited exposure to high-growth tech stocks during a broader market rally according to market analysis. However, this trade-off underscores its defensive positioning, which becomes a strength in uncertain markets.

Data from 24/7 Wall St. highlights that SCHD's high dividend yield of 3.78% (as of 2025) provides a buffer against equity market volatility. This reliability is further enhanced by the fund's low expense ratio of 0.06%, making it one of the most cost-effective options for income-focused investors. Additionally, its tax efficiency-achieved through a focus on long-term capital gains-reinforces its appeal in a low-yield environment where investors seek to maximize after-tax returns as demonstrated by Schwab's analysis.

Long-Term Outperformance and Strategic Trade-Offs

While SCHD's recent underperformance may raise concerns, its long-term track record remains compelling. Historical data shows that SCHD has outperformed peers like VYM and the JPMorgan Equity Premium Income ETF (JEPI) when held over a decade. This is partly due to its emphasis on reinvested dividends, which compound returns over time. As noted by Seeking Alpha, SCHD's focus on "dividend sustainability" rather than short-term yield ensures that investors are less exposed to companies at risk of cutting payouts during economic stress.

The fund's underperformance in 2024–2025, meanwhile, reflects a strategic trade-off. By avoiding overexposure to the tech sector-a major driver of market gains during this period-SCHD prioritizes stability over speculative growth. This aligns with value investing principles, which emphasize buying undervalued, cash-generative companies rather than chasing high-growth narratives as demonstrated by Morningstar. For investors prioritizing income preservation over capital appreciation, this approach is a key differentiator.

Conclusion: A Balanced Solution for Income Investors

In a low-yield era, SCHD offers a compelling blend of value investing rigor and dividend reliability. Its defensive sector allocations, high-quality holdings, and focus on long-term dividend growth position it as a resilient option for investors seeking income in uncertain markets. While recent underperformance highlights the challenges of balancing stability with growth, the fund's historical outperformance and tax efficiency reinforce its role as a core holding in a diversified portfolio. For those prioritizing consistent income and downside protection, SCHD remains a standout choice.