Every year in March, the Schwab U.S. Dividend Equity ETF (SCHD +0.52%) reconstitutes and rebalances itself. This essentially means that it runs its strategic methodology from scratch and rebuilds its portfolio according to what's happening right now.
Since this exchange-traded fund (ETF) is a favorite among dividend income investors, the annual reconstitution draws a lot of interest from investors. The ETF examines a broad universe of stocks to find those demonstrating strong balance sheet health, long dividend histories, and above-average yields. Finally, it selects roughly 100 stocks displaying the best combination of these characteristics.
The Schwab U.S. Dividend Equity ETF does a great job of identifying the "best of the best" dividend stocks. There weren't as many major changes to the portfolio this year as there have been in the past, but there was some significant turnover.
Image source: The Motley Fool.
New top 10 holdings
Prior to the reconstitution, here's what the fund's top 10 holdings looked like.
| 1. ConocoPhillips | COP | 5% |
| 2. Lockheed Martin | LMT | 4.9% |
| 3. Chevron | CVX | 4.8% |
| 4. Verizon Communications | VZ | 4.4% |
| 5. Bristol Myers Squibb | BMY | 4.2% |
| 6. Merck | MRK | 4.1% |
| 7. Altria | MO | 4.1% |
| 8. Coca-Cola | KO | 3.9% |
| 9. PepsiCo | PEP | 3.8% |
| 10. Texas Instruments | TXN | 3.8% |
Data source: Schwab Asset Management.
And here's how the top 10 holdings look today.
| 1. Chevron | CVX | 4.6% |
| 2. ConocoPhillips | COP | 4.2% |
| 3. Verizon Communications | VZ | 4.1% |
| 4. Merck | MRK | 4% |
| 5. Coca-Cola | KO | 4% |
| 6. Texas Instruments | TXN | 3.9% |
| 7. Abbott Laboratories | ABT | 3.8% |
| 8. UnitedHealth Group | UNH | 3.8% |
| 9. Amgen | AMGN | 3.8% |
| 10. PepsiCo | PEP | 3.8% |
Data source: Schwab Asset Management.
Seven of the top 10 holdings -- Chevron, ConocoPhillips, Verizon, Merck, Coca-Cola, Texas Instruments, and PepsiCo -- are holdovers. Amgen is also a holdover, but is new to the top 10. Abbott Laboratories and UnitedHealth Group are new to the fund altogether. Lockheed Martin, Bristol Myers Squibb, and Altria are still in the fund but out of the top 10.
Because the Schwab U.S. Dividend Equity ETF is market-cap-weighted, stocks that remain in the portfolio through the reconstitution generally maintain similar allocations. If a large cap newly qualifies for inclusion, it's not unusual to see it move right into the top 10 holdings, like we're seeing with Abbott and UnitedHealth.
New sector allocations
Here are the pre- and post-reconstitution sector weightings for the fund.
| Communication services | 4.3% | 7.1% | 2.8 pp |
| Consumer discretionary | 8.5% | 6.5% | (2 pp) |
| Consumer staples | 18.5% | 19.2% | 0.7 pp |
| Energy | 19.9% | 16.5% | (3.4 pp) |
| Financials | 9.7% | 8.8% | (0.9 pp) |
| Healthcare | 16.2% | 18.6% | 2.4 pp |
| Industrials | 12.1% | 11.6% | (0.5 pp) |
| Materials | 2.7% | 0% | (2.7 pp) |
| Technology | 8.2% | 11% | 2.8 pp |
| Utilities | 0.1% | 0.1% | No change |
Data source: Schwab Asset Management.
The prior year's reconstitution was notable because of the major shift in the financials and energy sector holdings. In 2025, Financials dropped from around 17% of the portfolio to about 8.5%. Energy jumped from 12% to 21%. That shift ended up being a big reason why the fund has done so well over the past year.
There are no such big changes in this latest reconstitution. If anything, there's a little less cyclical exposure with the allocation declines in energy and materials. Tech got a decent little boost, but it's still only the fifth-largest sector holding. Overall, I don't see a major difference in sector exposures, and I don't think the fund will perform meaningfully differently.
Additions and deletions
In all, 22 stocks are out, and 25 new stocks are in the Schwab U.S. Dividend Equity ETF.
The biggest additions, as mentioned earlier, are Abbott Laboratories and UnitedHealth Group. Other new names hover just outside the top 10 holdings -- Procter & Gamble, Qualcomm, Accenture, Comcast, and Automatic Data Processing.
The biggest names that got the boot are AbbVie, Cisco Systems, Halliburton, and Valero Energy.
What to expect from the Schwab U.S. Dividend Equity ETF
Given the relatively small sector allocation changes and the minor adjustments to the portfolio's defensive, growth, and cyclical mix, I don't think this ETF will behave much differently than it is now.
Last year's big shift into energy stocks before the sector began taking off is a major reason this fund has become an elite performer again in 2026. I'm not seeing a large-scale change this time around that might alter the look of the portfolio.
In the end, the quality and durability of the portfolio haven't really changed. That remains the biggest positive for this ETF.
