SCHD can continue to outperform in 2026 and beyond; it acts as a market hedge with strong long-term returns.

SCHD, the Schwab US Dividend Equity ETF, [0:03] has become the most popular dividend ETF [0:06] of all time with over 100 billion in [0:08] assets under management.

In the last year, SCHD is [0:47] up 26.4% [0:49] in year-to-date up nearly 25% just a [0:51] little over halfway into 2026.

So, when we take a [1:51] close look at the performance for SCHD [1:53] versus the S&P 500, we've already [1:55] pointed [1:56] we've already pointed out the [1:57] exceptional outperformance over the last [2:00] year and year-to-date so far in 2026. while SCHD is only up 54.2%.

So, it's no wonder why SCHD would [2:48] underperform during this time period. However, the data we're about to look at [2:52] reveals that there's multiple market [2:54] scenarios where SCHD can continue to [2:57] outperform not only in 2026, but over [2:59] the next couple of years.

It's tracking the Dow Jones [3:28] US Dividend 100 Index. Keep that in [3:31] mind. That's very important. Essentially, there's a few initial [3:34] screens like history of dividend [3:35] payments, trading volume, a minimum [3:37] market cap.

It ranks the top stocks by [3:39] indicated annual dividend yield while [3:41] also looking at quality metrics such as [3:44] free cash flow to total debt, return on [3:46] equity, 5-year dividend growth rate, [3:48] while implementing a 4% cap per stock.

We can see SCHD [4:15] first started trading back in late 2011.

Remember, the Dow Jones US Dividend 100 Index is what [5:51] we're talking about, and that's the [5:53] exact same index that SCHD tracks. And one of the time [6:13] periods it backtested was starting from [6:16] December 31st, 1998 all the way up until [6:19] August 7th, 2026.

And it shows total [6:22] returns of the Dow Jones US Dividend 100 [6:24] Index versus the S&P 500, and the [6:27] returns are absolutely mind-blowing.

The cumulative return of the Dow Jones US [6:31] Dividend 100 Index was 1,758% In other words, $10,000 in the Dow Jones [6:42] US Dividend 100 Index would have become [6:45] around close to 186K,

So, we're [6:50] now talking about a near 30-year time [6:52] period where the underlying index that, again, SCHD does follow, actually [6:57] outperformed the S&P 500, and it did so [7:00] by a significant margin.

What we can see here is a [7:45] study from Hartford Funds from 1978 to [7:47] 2023. Pay close attention to this column [7:50] right here. In the black, we can see [7:52] dividend growers and initiators [7:53] outperformed equal weighted universe.

It [7:56] outperformed dividend cutters and [7:57] eliminators and non-dividend payers. And [8:00] this is over that entire time period.

Because the reality is we [8:38] know AI is transforming the entire [8:40] capital market landscape. So, let's [8:42] start to break down a few key metrics. Now, again, the data we're looking at [8:45] here is pulled directly from Schwab's [8:47] website.

And keep in mind, it's trailing [8:49] 12-month data, not forward-looking data.

So, essentially SCHD is about 33% cheaper than the S&P 500. However, when we start to look at a [9:34] price-to-cash valuation, the disconnect [9:36] gets even larger. SCHD at 10.35

All of a sudden, SCHD is sitting at a [9:45] 45, close to 46% discount.

Now again, all this is doing is [10:10] measuring net income divided by [10:12] shareholders' equity. So, theoretically, [10:14] if a company had a 20% ROE, it's [10:16] generating roughly 20% of annual profit [10:19] for every $1 of shareholder equity.

Now, what we can see is if we assume no change in the PE multiple, the S&P 500 would actually see slight outperformance versus SCHD in the scenario. But, both would still be posting very strong total returns because again, the dividend yield plus EPS growth is what gives us our total return here because there is no change in the valuation multiple.

But, if we see the S&P 500 start to revert back to its historic market averages closer to around 23 times earnings. While SCHD already remains very close to its historic market average, we can see all of a sudden SCHD is beating the S&P 500 by quite a few percentage points.

Even if we see some decline in SCHD's valuation multiple, it still posts stronger returns than the S&P 500.

And keep in mind, SCHD isn't [14:56] just a basket of stocks, it's a [14:57] methodology. So, every single year, it's [15:00] selecting the top 50 stocks by indicated [15:02] annual dividend yield, which also, for [15:04] the most part, will simultaneously mean [15:06] it's selecting stocks with lower PE [15:09] multiples.

This is why we rarely see a [15:11] large drop in the PE multiple for SCHD.

So, here's the short answer to our question. SCHD absolutely has the ability to continue to outperform over the next year, absolutely has the ability to continue to outperform in 2026, and potentially over the next couple of years.

But, the more complete answer is it obviously depends on the market environment that we're operating in.

But, the reality is SCHD is an incredible hedge against the market right now. If you look at their total return since inception, you can see the down years for the market are very little for SCHD.

For example, in 2022, the S&P 500 was down by about 18%. SCHD only dropped by about 3.2. It's exactly like Hartford Funds research showed us earlier. It outperformed significantly during bear markets.

So, the reality is if you want to feel comfortable over full market cycles, when we're in bull markets and bear markets, a dividend growth strategy like SCHD has posted phenomenal long-term total returns.

But, the beauty of SCHD is regardless of market performance, we continue to see those dividend payments climb higher and higher. So, for someone looking to one day live off dividends, it's a phenomenal fund to consider.

It completely alleviates sequence risk of returns, which is the exact reason a lot of investors weren't able to retire during the dot-com bubble and really for the entirety of the 2000s.

So again, for complete transparency, SCHD is a holding in my personal portfolio,