SCHD serves as a strong hedge in expensive markets due to its valuation-based exclusion of overpriced stocks; current low dividend growth is likely temporary and not indicative of full-year weakness.

quarter dividend distribution has just been announced . The value was 0.2665 cents per share, and it will be paid out on September 28. This increase in distributions will raise many questions among investors about the SCHD fund, as it represents an increase of only 2.34% compared to the distributions in the third quarter of last year.

But what perhaps more people will talk about is that, so far and compared to 2025, the SCHD fund has seen only 0.32% growth in distributions in 2026.

This is far less than what we have historically seen from this fund. For example, since 2019 the growth in distributions has been close to 12%, and since the establishment it has been close to about 11% annually.

So, what happens with this box? Why is the growth in dividends so low? Now, let's begin, what do we know about the SCHD fund? Well, in 2026 so far, his performance has been exceptional by all measures.

It has risen by approximately 23% excluding dividend payments.

There are several different reasons for this, but if we simply look at SCHD’s holdings , we can see that they have allocations to the healthcare, defense consumer goods , and energy sectors as well.

The energy sector was the biggest winner. It has increased by about 40%. This pushed SCHD up significantly, but we can also see that the healthcare sector performed well as well, rising by about 9%.

So, yes , from the perspective of the stock price increase alone, SCHD has performed very well since the beginning of the year, and this superior performance is clearly amplified when viewed on the basis of total returns.

However, many people invest in this fund because of its historically strong distribution growth. I mean, for example, look at the historical levels of distribution growth. Pay close attention to this annual growth chart.

We can see that we are most often talking about double-digit growth, and in some cases 17 to 18%, and growth approaching 20%, with some growth being 16%.

This is why this fund has become a favorite among income investors. So, let's begin analyzing this latest distribution announcement in more detail. If we zoom in a little here, we can see the latest distribution push of 0.2625.

Which we will begin to talk about through annual growth.

To begin, let's talk about the year-on-year growth of quarterly distributions . Looking at the third quarter of 2025, the value of dividends was 0.2604. This year it reached 0.2625, a growth of less than 1%. Certainly not substantial growth.

We can also compare dividend payouts to the previous quarter, which is not the best way to evaluate. But it experienced slight growth again . But when you look at these three growth rates so far compared to the previous year, they are not impressive.

I mean, we're talking about dividend growth of only 0.32% so far in 2026.

Again, why is this happening? Here we need to understand something very important about the structure of these exchange-traded funds. How does SCHD actually collect and distribute its profits?

It's relatively simple. What does the SCHD fund do? Look at the fund's assets. The fund collects dividends from its assets and then distributes the income to the fund's shares.

Keep this in mind, because the number of shares matters. But here's what's very important to understand. The size and timing of net cash flows can be significant for funds like SCHDs because large creations or redemptions change the number of shares during the accumulation period.

For example, let's assume that SCHD collected most of the profits it will distribute for the third quarter. This is likely to be true. Then let's assume that SCHD experienced a significant increase in assets under management and in the number of its shares a few days before the distribution.

This suddenly means smaller dividends per share at SCHD.

This is not something that is discussed much, but Charles Schwab has confirmed that this could happen. Now, here's what's interesting about this. Take a look at this chart I created and posted on Seeking Alpha about SCHD fund flows over the past year.

To begin with, you can look to late 2025 and early 2026, when investors were at the height of their pessimism about SCHD, and actually started to abandon the fund, which is the worst possible time to do so.

But now that the fund is performing well, investors are returning to it, pumping in record amounts of capital. SCHD is the most popular dividend fund.

But as a result of these massive inflows that we have seen in recent quarters, it is very likely that this has played a role in the smaller distributions that we are seeing now.

This is important to understand, but it is not the only data point worth mentioning. Pay close attention to this here. Dividend payouts grew during the first three quarters of the year.

Historically, you can see that this has been in the green zone almost every year with remarkable growth.

However, we see one year here. What year is this ? Okay, it's 2016. Let's zoom in and take a closer look at what happened. During the first three quarters, we can see that the growth in cash dividends was -1.81%.

It was the worst ever, but total distribution growth for the year ended at 9.72%; In the fourth quarter of 2016, distribution grew by 46 to nearly 47% year-on-year.

Therefore, keep in mind that weak distribution growth during the first three quarters of the year does not necessarily mean that overall annual growth will be weak. However, as we now know, the fund's flows will generally affect this .

These are two very important observations that should be noted regarding the reason for SCHD's small dividend payouts and what they may look like in the future .

Now, I want to quickly go over what my SCHD dividend looks like, because you probably know that this stock is in my portfolio . So let's go ahead and talk about that for a moment. I own approximately 3,717 shares in SCHD.

What we know now is that the dividend will be 0.2665. So if we enter these numbers 0.2665, we can see that my SCHD dividend will amount to approximately $975.71.

I repeat, I've said this many times, but it's important to understand that the magic of SCHD isn't in the dividends you receive now, but in those you'll receive in the future.

So let's see how the snowball effect of dividend distributions really starts to happen. With these quarterly dividends and SCHD’s current trading price of around $73.74 per share, I would add about 28 to 29 shares once the dividends are reinvested.

With SCHD’s current distributions, this would add about $31 to annual distribution income , and if calculated on an annual basis, it would add about $124.

That's great, but what's even more powerful is how my distributions actually grow through the growth of the distributions themselves. So, if my payout is approximately $975.71, assuming an annual dividend growth of 11%, the added dividend income from this growth would be approximately $107.

If we combine the two, you can see that once I retain the SCHD, I add approximately $231.10 to my projected annual dividend income . In other words, this figure you see here, which is the projected annual dividend income , is up by about $231 this year just by holding SCHD.

Now, there is one more thing I would like to point out quickly, which is that I know some people are concerned that SCHD is "overvalued" because the share price has seen a significant rise so far in 2026. However, it is wrong to view SCHD in this way.

But here's what's interesting about SCHD. It's an amazing hedge against an expensive market. Many people think, "Oh, that's just because of the type of stocks he holds . He holds value stocks, dividend-paying stocks."

But in reality, this is due to the methodology used.

Yes, SCHD has primary filters that look for a track record of dividend growth and a minimum market capitalization threshold. They have quality filters. But one thing they also do that many people don't think about is that they rank the results of their initial filters according to the declared annual dividend yield and keep only the top 50%.

Now, why is this interesting? Well , when a company's stock price rises faster than its dividend payouts, its return decreases. However, because SCHD’s underlying index looks for above-average returns and includes the return in its composite rating, a stock can become less competitive for inclusion the further its price deviates from its dividends.

Now, what does this actually mean in terms of evaluation? Okay, think of a company whose stock trades at $100, makes $5 a year, and pays out $4 in dividends. The price-to-earnings (P/E) ratio is approximately 20 times, and the dividend yield is 4%.

However, if the share price rises to $150 while earnings and dividends remain unchanged , the price-to-earnings ratio rises to 30 times and the yield falls to about 2.67%. The company has not become more profitable, but investors are now paying 50% more for the same dividends and payouts.

The paradox, therefore, is that this methodology leads SCHD to exclude high-priced stocks and add their higher-yielding counterparts . In other words, this not only provides artificial growth in distributions , but also keeps SCHD within a converging valuation range year after year.

It prevents the fund from holding expensive stocks.

For this reason, this fund is an excellent hedging tool in a high-priced market. That was a quick overview of the SCHD fund. We hope this has provided some interesting insights into why the distributions were lower than many expected.

We hope that he also made it clear, as in 2016 for example, that annual dividend growth remains very strong.