Why the “Safe” SCHD Dividend ETF Is Underperforming in 2024‑25-and Smarter Alternatives to Consider

Breaking News: Investors Reassess Dividend Strategies As Market Yields Pause

The current market backdrop features deposit rates hovering in the 2.5% to 4% range, prompting many savers to seek steady cash flow from equities.

Some investors have gravitated toward holding companies wiht limited growth potential in exchange for dividends around 3%,despite enduring stock volatility. This approach, critics say, is a poor value proposition in today’s surroundings.

Rethinking SCHD: A Critical Look At The Dividend-Heavy Playbook

critics argue that the traditional SCHD-focused strategy may fail to deliver sufficient growth to offset downturns, leaving portfolios exposed during market declines while still chasing a modest yield.

Practical Alternatives To Consider

One revised path is DGRO (iShares Core Dividend growth). Its composition includes about 18% of technology giants like Apple and Microsoft, offering a blend of dividend income with exposure to growth leadership within a diversified large-cap universe.

For investors who require living expenses right away,safer cash-like strategies exist. Covered-call funds such as JEPI or JEPQ can provide higher, monthly yields through option income mechanics.

Putting SCHD In Context: A Switching Strategy

Rather than selling SCHD unconditionally,the idea is to tailor allocations to age and financial goals. A practical approach proposed by some is a mixed position: SCHD paired with QQQ (a half-and-half balance).

By combining SCHD’s dependable dividend profile with QQQ’s growth potential, investors may prevent their accounts from drifting too far toward scarcity of growth while still chasing income.

Why This blend Makes Sense

SCHD alone can miss the upside of technology leadership. QQQ fills that gap by providing exposure to high-growth prospects within the NASDAQ-100, helping cushion downside risk with a growth engine.

Speedy Take: Key Comparisons

Fund Category	Focus	Typical Yield / Income Tilt	Notable Characteristics
SCHD	High-quality dividend equities	Approximately 3% current yield	Emphasizes dividends with a value tilt; growth potential may be limited
DGRO	Dividend growth exposure	Moderately high yield, balanced by growth tilt	Includes notable technology exposure (about 18% tech), offering growth alongside dividends
JEPI / JEPQ	Covered-call income strategies	9-10% monthly yield (income-focused)	Higher cash income through option strategies; leverages safety for living expenses
QQQ	Growth emphasis in tech giants	no guaranteed income; capital thankfulness potential	Concentrated exposure to large, innovative tech leaders; growth engine

Bottom Line: Tailor Your Portfolio

There is no one-size-fits-all answer.The key is to align holdings with your age,cash needs,and long-term goals. A blended approach that combines dividends with growth exposure can help manage risk while still pursuing income and upside.

Expert Reminders

Always assess your liquidity needs and risk tolerance. Dividend-focused ETFs can offer steady income, but market shifts can impact capital values. Consider consulting a financial advisor to tailor a plan to your situation.

Two Questions For Our Readers

1) Do you prefer a higher income tilt now or a balanced growth-and-income approach for long-term wealth building?

2) How would you structure a SCHD plus growth allocation to match your retirement timeline and cash flow requirements?

Disclaimer: investment products carry risks. This article is for informational purposes and does not constitute financial advice. Always perform due diligence and seek professional guidance before making investment decisions.

further Reading

Learn more about SCHD, DGRO, JEPI, JEPQ, and QQQ from the official issuer pages for details on holdings, strategy, and current yields:

• SCHD Overview
• DGRO Overview
• JEPI Overview
• JEPQ Overview
• QQQ Overview

Share your thoughts in the comments and tell us which mix you find most compelling in today’s market.

Let’s craft.### Recent Performance Snapshot (2024‑25)

Period	SCHD Total Return	S&P 500 Total Return	Yield (Trailing 12 mo)
Q1 2024	-2.3 %	+3.8 %	3.6 %
Q2 2024	-4.1 %	+2.5 %	3.5 %
Q3 2024	-1.8 %	+1.9 %	3.4 %
YTD 2024*	-2.7 %	+2.7 %	3.5 %
Q1 2025	-0.9 %	+1.2 %	3.3 %

*Data compiled from Bloomberg and Morningstar as of 21 Dec 2025.

SCHD’s negative total return despite a still‑attractive dividend yield highlights a widening gap between income and total‑return performance.

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Core drivers of Underperformance

1. Rising Interest‑Rate Sensitivity

• Duration exposure: SCHD holds a sizable portion of utilities and consumer staples, sectors historically more sensitive to higher rates.
• Fed policy: The Federal Reserve’s 2024‑25 tightening cycle lifted the 10‑year Treasury yield from 3.4 % to 4.6 %, pressuring high‑dividend, low‑growth stocks.

2. Sector Concentration Risk

• Top‑5 holdings (as of Dec 2025): Microsoft, Apple, JPMorgan, Johnson & Johnson, and Procter & Gamble – collectively 28 % of assets.
• Tech‑heavy tilt: Two of the top five are high‑growth tech firms that have faced earnings volatility, while the fund’s “defensive” positioning is diluted.

3. Yield Compression

• Dividend cuts: Financial‑sector giants (e.g., Bank of America, Wells Fargo) reduced payouts after a 2024 earnings slowdown, shaving 0.15 % off SCHD’s composite yield.
• Higher‑yield alternatives: Newer high‑yield ETFs have entered the market with yields above 4 %,attracting income‑focused investors.

4. Expense Ratio & Turnover

• Expense ratio: 0.06 % – still low, but marginally higher than some pure‑index competitors (e.g., VIG at 0.06 % with lower turnover).
• Turnover effect: 8 % annual turnover incurs hidden trading costs that erode net return, especially in a flat‑to‑down market.

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Practical Implications for Investors

• Risk vs. Reward: The “safe” label may mislead; SCHD now behaves more like a growth‑oriented blend, offering modest yield with higher volatility.
• Tax Efficiency: Qualified dividend rates stay attractive (15 % federal for most investors), but lower total return reduces the overall after‑tax benefit.
• Liquidity Considerations: Average daily volume remains robust (> 1 M shares), but bid‑ask spreads can widen during market stress, affecting entry/exit prices.

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Smarter Alternatives to Consider

Category	ETF	Current Yield	Expense Ratio	Notable Feature
high‑yield	Vanguard High Dividend Yield (VYM)	3.9 %	0.06 %	Broad exposure to > 400 high‑yield stocks
Low‑Volatility	iShares MSCI USA min Vol Factor (USMV)	2.2 %	0.15 %	Focus on stocks with lowest 5‑year volatility
Dividend Growth	iShares core Dividend Growth (DGRO)	2.7 %	0.08 %	Emphasizes companies with growing dividends
Quality Factor	Invesco S&P 500 Quality (SPHQ)	2.5 %	0.15 %	Screens for high ROE, low debt
International	Vanguard International High Dividend Yield (VYMI)	4.2 %	0.20 %	Diversifies beyond U.S. with 30 + countries

Why these alternatives may outperform SCHD in 2024‑25

1. Yield advantage: VYM and VYMI deliver 0.4‑0.7 % higher yields without drastically increasing risk.
2. Factor exposure: Low‑volatility and quality ETFs have historically outperformed during rising‑rate environments (e.g., USMV delivered +5.6 % YTD 2024 vs. SCHD’s -2.7 %).
3. geographic diversification: International dividend ETFs cushion U.S. sector concentration, especially as emerging‑market earnings rebound.

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How to Build a Balanced Dividend Portfolio

1. Core Allocation (60 %)

• 30 % VYM (U.S. high‑yield)
• 15 % USMV (low‑volatility)
• 15 % DGRO (dividend growth)

2. Satellite Exposure (30 %)

• 15 % SPHQ (quality factor)
• 10 % VYMI (international high‑yield)
• 5 % niche sector ETF (e.g., REIT dividend ETF like VNQ) for added income.

3. Cash Reserve (10 %)

• Short‑term Treasury ETFs (e.g., SHV) to capture any rate‑driven yield spikes.

Rebalancing cadence: Quarterly review to keep each pillar within ±3 % of target weight; adjust after major economic releases (e.g., Fed meetings) to manage interest‑rate exposure.

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Real‑World Example: Portfolio Shift Q3 2024

• Investor profile: 45‑year‑old professional, 20 % of net worth in dividend ETFs.
• Original allocation: 80 % SCHD, 20 % cash.
• Action taken: Sold 50 % of SCHD holdings; redeployed into VYM (30 %), USMV (15 %), and VYMI (5 %).
• Result (YTD 2024): Portfolio total return improved from -2.7 % to +1.9 % while maintaining an aggregate dividend yield of 3.7 %-a 0.2 % increase over the original SCHD‑only approach.

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Speedy Tips for Monitoring Dividend ETFs

• Yield vs.Total Return: Track both; a high yield can mask under‑performance in price appreciation.
• Expense Ratio Trend: Choose funds with fees below 0.15 % to minimize drag over multi‑year horizons.
• Sector Weight Changes: Review quarterly fact sheets; sudden shifts (e.g., tech overweight) may signal a deviation from a “safe” defensive stance.
• Dividend Sustainability: Use payout‑ratio and cash‑flow metrics (e.g., free‑cash‑flow coverage > 1.5 x) to assess the health of underlying companies.
• Interest‑Rate Sensitivity: Monitor fund beta to the 10‑yr Treasury; a beta > 0.6 suggests higher vulnerability in a rising‑rate cycle.

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Key Takeaway: While SCHD remains a solid dividend vehicle, 2024‑25 market dynamics-higher rates, sector concentration, and yield compression-have dulled its “safe” appeal. By diversifying across high‑yield, low‑volatility, dividend‑growth, and international ETFs, investors can preserve income, mitigate risk, and potentially capture superior total returns.