SCHD Just Made Big Changes. Is This Dividend Growth ETF Still a Buy?

Core Viewpoint - The Schwab U.S. Dividend Equity ETF (SCHD) has undergone significant portfolio changes, removing 22 holdings and adding 25 new ones, raising questions about its continued attractiveness as a dividend growth investment [1][5][12]. Group 1: Portfolio Changes - SCHD removed notable energy stocks such as Valero Energy (VLO), Halliburton (HAL), and Ovintiv (OVV), which had seen substantial price increases of 80%, 46.5%, and 32% respectively [1][8]. - The ETF added companies that have experienced declines, including UnitedHealth Group (UNH), Ares Management (ARES), and Accenture (ACN), with decreases of 48%, 30%, and 35% respectively [1][8]. - The reconstitution reduced energy sector exposure by approximately 8 percentage points while increasing allocations to health care and technology sectors [1][8]. Group 2: Investment Strategy - SCHD employs a rules-based index methodology that automatically sells stocks whose rising prices compress dividend yields and replaces them with higher-quality dividend growers at more attractive valuations [2][11]. - The ETF has achieved a cumulative return of 478% since its inception in 2011, averaging a 13.3% annualized return [4][11]. - The incoming stocks have an average five-year dividend growth rate of 63%, compared to 37% for the stocks that were removed, indicating an upgrade in the portfolio's long-term payout potential [10][12]. Group 3: Market Position - SCHD is recognized as a cornerstone holding for income investors, providing steady payouts and capital appreciation [5][12]. - The ETF's disciplined, emotion-free approach has allowed it to consistently favor high-quality dividend payers while avoiding pitfalls common in actively managed funds [7][12]. - The latest changes are viewed as a mechanical step in SCHD's long-term strategy, reinforcing its position as a reliable investment for income-focused investors [12].