The Schwab U.S. Dividend Equity ETF (NYSE:SCHD) has long been a go-to for income-oriented investors seeking low-cost exposure to high-quality, dividend-paying U.S. stocks.
But over the past six months, SCHD has struggled to keep pace with its dividend ETF peers; it garnered only $317.3 million in net inflows, compared with $2.38 billion for the Vanguard Dividend Appreciation ETF (NYSE:VIG) and $3.14 billion for the Vanguard High Dividend Yield ETF (NYSE:VYM), per data aggregated by Etfdb.
This divergence highlights a subtle but growing shift in investor sentiment: while income strategies remain relevant, SCHD's value-heavy exposure and relatively narrow sector mix may be losing appeal in a market still dominated by growth and broader yield plays.
Part of the drag on dividend-heavy vehicles like SCHD stems from broader macro narratives, from rising rate expectations to a rotation back into growth stocks. But another, more acute headwind emerged last week.
President Donald Trump rattled markets by declaring he will not permit dividends or stock buybacks for U.S. defense companies until they improve weapons production and delivery performance, a move formalized in an executive order aimed at realigning capital allocation in the defense sector. The policy specifically targets traditional defense contractors, barring dividend payouts and share repurchases by "underperforming" firms until they meet performance benchmarks.
Though defense stocks are a relatively small slice of SCHD's holdings, the news sent a chill through dividend-focused strategies generally, as income-oriented investors fear regulatory risk may creep into broader capital return policies.
SCHD is at a turning point, with political risk and shifting investor preferences threatening to keep it in the middle of the dividend ETF pack. For advisors and income investors, much will depend on how policy decisions and market priorities shape corporate payouts in the months ahead.
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