Dividend growth investing with SCHD: index rules and a 10-year test

SCHD (Schwab U.S. Dividend Equity ETF) is a US dividend ETF listed in October 2011 that tracks the Dow Jones U.S. Dividend 100 Index. Its expense ratio is 0.06% a year, and it pays distributions quarterly. In October 2024 it split each share into three (split-adjusted trading began on October 11), and every per-share amount in this article is split-adjusted. This article covers how the index picks stocks, how it differs from the dividend ETFs it is often compared with, our 10-year monthly investing results, and taxes for Korean investors.

How the index picks stocks

The rules below follow the fund's summary prospectus (December 22, 2025), step by step.

• Universe: US stocks, excluding REITs, MLPs, preferred stocks and convertibles.
• Gate: only stocks that have paid dividends for 10 consecutive years, have a float-adjusted market cap of at least $500 million and meet minimum liquidity rules remain. The rule does not ask whether the dividend was raised every year. It only asks whether it was paid without a break.
• Score: among the remaining stocks, the higher-yielding ones are scored on four measures: cash flow to total debt, return on equity (ROE), dividend yield and five-year dividend growth rate. The score picks 100 stocks.
• Weights: float-adjusted market cap, with no stock above 4% and no sector above 25%. The caps apply when the index is built, when members are reset and at each quarterly rebalance, so weights can drift past them in between.
• Schedule: members are reset once a year (in March) and weights are rebalanced quarterly. The fund reported portfolio turnover of 30% for its most recent fiscal year.

It is often called a dividend growth ETF, but the center of the rule is dividend yield. Dividend growth is one of four scores, and the 10-year rule is about a record of paying, not raising. Because yield is part of the score, a stock whose yield fell after a big price rise is more likely to be pushed out at the next March reset.

Five dividend ETFs that are often compared

Most of the difference between dividend ETFs comes from the dividend history rule and from how dividend yield is used. The table summarizes the rules published by each fund company and index provider, as of 2026.

VIG and DGRO deliberately leave out the highest yielders. A stock whose yield rose only because its price fell is often followed by a dividend cut, and S&P Dow Jones Indices describes the top-25% exclusion as a guard against such dividend traps. SCHD starts from the higher yielders instead and screens out traps with its financial scores. As a result, the yield on the past 12 months of dividends at the end of September 2026 was 3.2% for SCHD, 1.0% for SPY and 0.4% for QQQ.

10 years of monthly investing (as of September 2026)

We bought SCHD, SPY and QQQ with $500 each at the open of the first trading day of every month, on the same days, from October 2016 to September 2026. A total of $60,000 went in. Dividends were reinvested on the ex-dividend date, each buy and sell cost 0.15%, and taxes and exchange rates were left out. Values updated monthly, the full period and the five-year results are in the SCHD vs. SPY and QQQ monthly investing backtest.

• The end balance was $113,521 for SCHD, $136,164 for SPY and $180,486 for QQQ. The annual return (IRR) was 12.3%, 15.7% and 20.9%.
• Yearly dividend income, from the shares held on the as-of date and the past 12 months of dividends, was $3,687 for SCHD, $1,356 for SPY and $755 for QQQ, before tax. Against the $60,000 put in, that is 6.1%, 2.3% and 1.3%.
• Of 120 five-year monthly investing windows, starting one month apart from November 2011, SCHD ended higher than SPY in 23% and higher than QQQ in 7%.
• In 14 calendar years from 2012 to 2025, SCHD beat SPY in four: 2013, 2016, 2021 and 2022.
• The two years with the widest gaps went in opposite directions. 2022 was SCHD −3.3%, SPY −18.2% and QQQ −32.6%. 2023 was SCHD +4.5%, SPY +26.2% and QQQ +54.9%.
• Falling less did not happen every year. 2018 was SCHD −5.6% and SPY −4.6%. The max drawdown over the 10 years was also nearly the same, 33.4% for SCHD and 33.7% for SPY, both bottoming on March 23, 2020. QQQ's was 35.1%, bottoming in November 2022.

How fast the dividend grew

SCHD's dividend per share (sum of the past 12 months, split-adjusted) was $0.377 at the end of September 2016 and $1.055 at the end of September 2026. That is 2.8 times in 10 years, or 10.8% a year. Measured the same way, SPY's grew 5.5% a year and QQQ's 9.6% a year. Over the last five years alone the order changes: SCHD 7.2% a year, SPY 6.0% and QQQ 11.8%. Fast dividend growth was not unique to SCHD. The big difference was the starting yield.

If dividends are not reinvested

In the same 10 years of monthly SCHD investing, spending the dividends instead of reinvesting them left an end balance of $92,387 plus $14,251 in dividends received. Even added together, that was $6,883 less than the reinvested balance, or 6.1% of it. For SPY over the same 10 years the gap was 3.7%. Yearly dividend income from the shares held on the as-of date was $3,687 reinvested and $3,001 spent. Dividends taken out earned no interest (reinvesting vs. spending dividends backtest).

Why it lagged over the last 10 years

The large technology stocks that led much of the US market's rise from 2016 mostly paid no dividend, had a short dividend record or had a low yield. SCHD's rules screen such companies out at the 10-year dividend gate or in the yield score. For example, Meta and Alphabet announced their first dividends in 2024, so they cannot meet the 10-year rule before the mid-2030s.

By holdings on September 29, 2026, the top 10 were Qualcomm, Texas Instruments (semiconductors), P&G, Coca-Cola (consumer staples), Merck, UnitedHealth, Amgen (health care), Chevron, ConocoPhillips (energy) and Verizon (telecom). Seven of the 10 were in consumer staples, health care and energy. A rule that picks by dividend yield and financial measures tilts toward value and quality, and the yearly results show it plainly: behind in years when growth stocks rose, down less in years when they fell.

Dividends and total return

A dividend is not a return separate from total return. In theory the price drops by the dividend on the ex-dividend date, so the dividend is the part of total return paid out as cash. For the same total return, receiving a dividend and selling some shares leave the account worth the same, and only taxes and costs differ. On the as-of date of the 10-year test, an amount equal to 2.7% of the SPY balance matched SCHD's yearly dividend income ($3,687), and even after taking that out, the SPY balance was still $18,956 above the SCHD balance.

Taxes for Korean investors (as of September 2026)

• Distributions from US-listed SCHD: under the Korea-US tax treaty, 15% is withheld in the US. That is above Korea's 14% dividend tax rate (local income tax extra), so nothing more is withheld in Korea.
• Comprehensive taxation of financial income: distributions count as dividend income and are added to financial income together with interest. When yearly financial income exceeds 20 million won, it becomes subject to comprehensive taxation. At a 3.2% yield, with no other financial income, about 620 million won of SCHD produces 20 million won of distributions a year (before tax, at an unchanged exchange rate).
• Capital gains: a gain from selling a US-listed ETF is an overseas stock capital gain. The year's net gain minus a 2.5 million won deduction is taxed at 22% including local income tax, separately from financial income.
• Korean-listed ETFs: several ETFs listed in Korea track the same index in won, with "US Dividend Dow Jones" in their Korean product names. For overseas-stock ETFs listed in Korea, both distributions and gains are taxed as dividend income (15.4%) and added to financial income. The gain is taxed on the smaller of the actual gain and the rise in the taxable base price. Pension savings, IRP and ISA accounts follow different timing and rates.

This site's backtest does not deduct these taxes. The more a fund pays in dividends, the more tax comes out first each year, so after tax the reinvestment effect is smaller than the numbers here.

Related concepts and search terms

Names to use when you look further into dividend ETFs, and where this article's rule fits among them.

• Dividend growth investing: buying companies that have raised their dividends steadily and collecting the growing payouts. SCHD uses growth only as part of its score, so the indexes that require a record of raises are those behind VIG, DGRO and NOBL.
• Dividend Aristocrats, Dividend Kings: S&P 500 companies that raised their dividends every year for at least 25 years are called Dividend Aristocrats, and the index built from them is the S&P 500 Dividend Aristocrats. Fifty years or more is commonly called a Dividend King.
• Dividend trap, yield trap: a stock whose yield looks high only because its price fell. A dividend cut often follows, so indexes build in screens against it.
• Quality factor, value factor: ROE and cash flow to debt are quality measures, and dividend yield is closer to a value measure. SCHD's score mixes the two.
• Yield on cost: the dividend received now divided by the money put in. In this article's 10-year test it was 6.1% for SCHD, 2.3% for SPY and 1.3% for QQQ. Because it divides by cost rather than value, it looks larger the longer you hold.
• Homemade dividend: selling part of a holding to make the same cash instead of receiving a dividend. The idea comes from the dividend irrelevance theory of Miller and Modigliani (1961).
• DRIP (dividend reinvestment plan): using dividends to buy more of the same holding. This site's backtest treats each dividend as reinvested at the price on its ex-dividend date.

Search terms: dividend growth investing, Dow Jones U.S. Dividend 100, SCHD vs VIG, dividend aristocrats, yield trap, yield on cost, homemade dividend, dividend growth ETF.

Drawbacks and risks

• In a market led by growth stocks it can trail far behind. In 2023 alone, SCHD returned +4.5% and SPY +26.2%.
• At each March reset, stocks whose yield has fallen, which usually means stocks that rose a lot, are likely to drop out. It is not built to hold winners for long.
• Even with the 4% stock and 25% sector caps, holdings bunch up in a few industries. On September 29, 2026, seven of the top 10 were in consumer staples, health care and energy.
• Dividends are taxed each time they are paid. Even reinvested money has gone through US withholding first, so for the same total return, the higher-dividend fund pays tax earlier.
• Nothing in the rule says the pace of dividend growth will continue. Over the last five years, dividends per share grew 7.2% a year, below the 10-year average of 10.8%.