SCHD 2025 Rebalancing Analysis: Shifts Towards Energy and Defensive Sectors


The Schwab U.S. Dividend Equity ETF (SCHD) has undergone its latest rebalancing, making significant adjustments to its portfolio composition. These changes reflect the fund's strategic response to current market conditions and economic uncertainties. Let's dive into the details of this rebalancing and what it means for investors.

Previous SCHD Composition

Before the rebalancing, SCHD's top holdings included:

  • ABBVIE INC (ABBV): 4.96%
  • AMGEN INC (AMGN): 4.68%
  • COCA-COLA (KO): 4.59%
  • PFIZER INC (PFE): 4.28%
  • CHEVRON CORP (CVX): 4.27%
  • VERIZON COMMUNICATIONS INC (VZ): 4.26%
  • BRISTOL MYERS SQUIBB (BMY): 4.25%
  • CISCO SYSTEMS INC (CSCO): 4.23%
  • PEPSICO INC (PEP): 3.81%
  • TEXAS INSTRUMENT INC (TXN): 3.81%
  • BLACKROCK INC (BLK): 3.81%

In the financial sector, besides BlackRock, SCHD included several banking stocks such as US Bancorp (2.54%), M&T Bank (1.13%), Fifth Third Bancorp (1.03%), and Huntington Bancshares (0.83%).

Rebalancing Summary

Removed Stocks

The following stocks were removed from the SCHD portfolio:

  • Guess? (GES)
  • Heritage Financial (HFWA)
  • Cracker Barrel Old Country Store (CBRL)
  • Leggett & Platt (LEG)
  • Bank of Hawaii (BOH)
  • Synovus Financial (SNV)
  • Zions Bancorporation NA (ZION)
  • HR Block Inc (HRB)
  • CH Robinson Worldwide (CHRW)
  • DICK'S Sporting Goods (DKS)
  • KeyCorp (KEY)
  • Tapestry (TPR)
  • Huntington Bancshares (HBAN)
  • M&T Bank (MTB)
  • US Bancorp (USB)
  • Pfizer (PFE)
  • BlackRock (BLK)

Added Stocks

SCHD added the following stocks to its portfolio:

  • ConocoPhillips (COP) – 4.51%
  • Merck & Co (MRK) – 4.06%
  • Schlumberger NV (SLB) – 2.29%
  • Target (TGT) – 1.90%
  • General Mills (GIS) – 1.33%
  • Archer-Daniels-Midland (ADM) – 0.90%
  • Halliburton (HAL) – 0.87%
  • Ovintiv (OVV) – 0.42%
  • American Financial Group (AFG) – 0.36%
  • Autoliv (ALV) – 0.25%
  • FMC (FMC) – 0.21%
  • Moelis & Co (MC) – 0.17%
  • Flowers Foods (FLO) – 0.14%
  • Murphy Oil (MUR) – 0.14%
  • Federated Hermes (FHI) – 0.12%
  • Interparfums (IPAR) – 0.09%
  • Signet Jewelers (SIG) – 0.08%
  • CNA Financial (CNA) – 0.04%
  • Ennis (EBF) – 0.02%
  • First Financial (THFF) – 0.02%

Analysis of Changes

Expanded Energy Sector

SCHD significantly increased its exposure to the energy sector by adding ConocoPhillips (4.51%), Schlumberger (2.29%), and Halliburton (0.87%). This move appears to be a positive assessment of the energy sector's financial health, with stable oil and gas prices supporting dividend sustainability. These additions, alongside existing energy holdings like Chevron and EOG Resources, have established the energy sector as a core component of SCHD.

Financial Sector Restructuring

One of the most notable changes is the substantial reduction in banking stocks. SCHD removed numerous regional banks including US Bancorp, M&T Bank, KeyCorp, Huntington, Zions, and Synovus. This addresses a common criticism that SCHD was overexposed to banking risk. In their place, the fund added insurance and asset management companies such as American Financial Group, CNA Financial, Federated Hermes, and Moelis & Co, effectively diversifying risk within the financial sector.

Shift from Cyclical to Defensive Consumer Stocks

SCHD removed cyclical consumer discretionary companies like Dick's Sporting Goods, Tapestry, Guess?, and Cracker Barrel. It replaced them with more defensive consumer staples companies including Target, General Mills, Archer-Daniels-Midland, and Flowers Foods. This transition suggests a strategy to maintain stable dividend income sources amid potential economic slowdowns.

Healthcare Sector Adjustments

In a significant move, SCHD removed Pfizer (previously 4.28% of the portfolio) and added Merck (4.06%). This change likely reflects a preference for Merck's strong product lineup, including blockbuster Keytruda, and its history of consistent dividend growth. In contrast, Pfizer faces uncertainty due to declining COVID-19 vaccine demand.

Overall Assessment

SCHD's methodology goes beyond simply selecting high-dividend stocks; it comprehensively evaluates dividend growth potential, financial stability, and profitability. This latest rebalancing demonstrates how effectively this mechanism works to automatically adjust sector exposures and maximize diversification benefits.

The rebalancing has successfully addressed concerns about SCHD's high exposure to banking stocks by removing numerous regional banks and replacing them with insurance and asset management companies. This natural correction showcases SCHD's ability to adapt to changing market conditions through its screening process.

The overall direction of this rebalancing can be summarized as enhancing "dividend stability" and "defensive positioning." By increasing energy sector exposure, reducing banking stocks, and strengthening defensive consumer staples and healthcare companies, SCHD appears to be positioning for economic uncertainty while prioritizing dividend sustainability.

SCHD's strict index screening considers not only dividends but also ROE, debt ratios, and earnings power. The rebalancing has resulted in a portfolio with increased sensitivity to oil prices but significantly reduced banking risk and enhanced defensive characteristics.

While future SCHD performance will depend on economic developments, the fund has become more robust in terms of dividend stability. The effective sector adjustment mechanism confirms SCHD's continuing appeal as an attractive dividend ETF for long-term investors.

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