The Schwab U.S. Dividend Equity ETF Has Surged 15% to Start 2026. Here's the Secret Fuel Source Driving the Rally.

Core Viewpoint - The Schwab U.S. Dividend Equity ETF (SCHD) has experienced significant outperformance in early 2026, driven by a surge in crude oil prices, which has positively impacted its energy stock holdings [2][15]. Group 1: ETF Performance - The Schwab U.S. Dividend Equity ETF has a current income yield of 3.5% over the last 12 months and has delivered robust returns historically [1]. - Despite a lackluster performance in the previous year with only a 0.4% return, the ETF surged nearly 15% in early 2026, significantly outperforming the S&P 500's less than 1% rise [2][5]. Group 2: Sector Exposure - The ETF tracks the Dow Jones U.S. Dividend 100 Index, focusing on 100 top dividend stocks, with a high sector weighting in energy stocks at 19.9% as of the end of last year [4][5]. - The high exposure to energy stocks negatively impacted the ETF's returns last year due to falling oil prices [5]. Group 3: Oil Market Influence - Crude oil prices have rallied sharply in 2026, with Brent oil prices increasing by 15% to over $70 a barrel, influenced by potential supply disruptions in Venezuela and Iran [7]. - The rise in crude prices has benefited the ETF, particularly as two of its top holdings are major oil companies, Chevron and ConocoPhillips, which have seen significant stock price increases this year [8][15]. Group 4: Dividend Growth - Chevron has increased its dividend by 4%, marking 39 consecutive years of growth, with a compound annual growth rate of 6% over the last five years, significantly higher than the S&P 500's 5% [11]. - ConocoPhillips has a current dividend yield of 2.9% and increased its dividend by 8% late last year, aiming for dividend growth within the top 25% of S&P 500 companies [13][14]. - Both companies are expected to continue increasing their dividends, with Chevron projecting over 10% annualized growth in free cash flow through 2030 and ConocoPhillips anticipating an additional $7 billion in annual free cash flow by 2029 [14].