While growth stocks struggle in early 2026, one so-called “boring” dividend ETF is quietly dominating.
SCHD is up 15% in just the first seven weeks of 2026.
Meanwhile, the NASDAQ is down 6%.
If you’re holding SCHD right now, you’re probably smiling.
But here’s what most investors are missing…
On March 23rd, SCHD goes through its annual reconstitution — and several major holdings could be trimmed or removed entirely.
The big question:
👉 Is this bad news… or the start of another powerful run?
Let’s break it down.
Why This Reconstitution Matters
SCHD tracks the Dow Jones U.S. Dividend 100 Index — a rules-based index.
That means:
No emotional stock picking
No guesswork
Strict screening criteria
Every March, the index reevaluates companies using four quality metrics:
Cash Flow to Total Debt
Return on Equity (ROE)
Dividend Yield
5-Year Dividend Growth Rate
Think of it like a performance review.
And every year, some companies get “fired.”
First: Forced Trims Are Likely
Several top holdings are currently above the 4% weight cap. That typically triggers automatic trimming.
Likely candidates:
Lockheed Martin
ConocoPhillips
Chevron
These probably won’t be removed — but they could be cut back to stay within index rules.
High-Risk Stocks for Full Removal
Based on quality screen data, some names may be in serious danger:
🚨 Most At Risk
Ford Motor Company – EV transition pressure + weak ROE
Amcor – declining volumes
FMC Corporation – debt + falling cash flow
Historically, failing multiple screens usually means removal.
The Borderline Names (Watch Closely)
These companies may survive — but they’re skating on thin ice:
Texas Instruments – payout ratio near 200% of free cash flow
UPS – dividend slightly exceeds projected FCF
Verizon – slow dividend growth (~2%)
Hershey – cocoa cost pressure
If they fail the screens, they’re out.
Energy Sector Could Shrink
Energy currently makes up about 21% of SCHD — its largest sector exposure.
But here’s the issue:
Energy stocks have surged in 2026… while oil prices haven’t.
When stock prices rise but dividends stay flat → yields fall.
And lower yield = higher chance of removal in this index model.
A drop from 21% exposure to 15–16% isn’t unrealistic.
Why This Might Actually Be Bullish
Here’s where things get interesting.
We’re in what many analysts call The Great Rotation:
Growth stocks are cooling off
Dividend stocks are surging
Value is outperforming
SCHD trades around 18x earnings.
The S&P 500? Roughly 23–27x.
That valuation gap matters.
The index methodology is designed to:
Remove companies whose fundamentals weaken
Add companies with stronger dividend sustainability
Maintain yield + growth balance
Over full market cycles, this discipline has historically worked.
Short-term pain. Long-term compounding.
The Bigger Picture
The index has backtested to 1999 and has delivered approximately 10%+ annualized returns over long periods — often outperforming the broader market during value cycles.
With:
A yield near 4%
10-year dividend growth near 11%
Potential Fed rate cuts in 2026
The setup could favor dividend ETFs like SCHD.
What Should Investors Do?
If you’re a long-term holder:
✔ Expect trims
✔ Expect a few removals
✔ Don’t panic
The reconstitution is the system working exactly as designed.
And sometimes, the “boring” strategy wins.
Ready to Position Yourself Before March 23?
If you’re looking to buy SCHD or other dividend ETFs during this value rotation, consider using Moomoo — a powerful investing platform with advanced tools, real-time data, and competitive trading fees.
👉 Open your account here:
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Take advantage of market volatility. Build long-term passive income. Let compounding do the heavy lifting.
What do you think — bullish or worried about the reconstitution?
Drop your thoughts below 👇
Let’s discuss dividend investing, ETF strategy, and 2026 market trends.
#SCHD #DividendInvesting #ETFStrategy #PassiveIncome #ValueInvesting #StockMarket2026 #FinancialFreedom
