SCHD is the Schwab U.S. Dividend Equity ETF, and no manager picks its holdings. It tracks the Dow Jones U.S. Dividend 100 Index, whose membership rules sit in the fund’s summary prospectus dated December 22, 2025.
Three stages run in order: an eligibility gate, a ranking on four ratios, then hard caps on weight. The sequence explains most of what the fund owns and all of what it never will.
The total expense ratio is 0.060%, and the fund has traded on NYSE Arca since October 20, 2011.
The eligibility gate: 10 years of dividends and $500 million of float
The starting universe is the Dow Jones U.S. Broad Market Index. Four security types come out first: real estate investment trusts, master limited partnerships, preferred stocks and convertibles.
The data center REITs carrying much of the AI buildout therefore cannot enter this fund at any price, whatever they yield.
Survivors then face three tests: at least 10 consecutive years of dividend payments, a float-adjusted market capitalization of at least $500 million, and the index’s minimum liquidity criteria.
Four ratios decide the ranking
Eligible names are evaluated on four fundamentals-based characteristics: cash flow to total debt, return on equity, dividend yield, and the five-year dividend growth rate.
Two of those read the balance sheet and two read the dividend itself. A high yield alone does not buy a slot, which is what separates this index from a pure yield screen.
The prospectus does not disclose how the four are weighted against each other, so the trade-off between a clean balance sheet and a fat yield stays opaque.
The ranking is also relative: a company holds its place only while it outscores the alternatives. That is a different discipline from screening for undervalued AI stocks against an absolute valuation target.
The 4% and 25% caps that reshape the weights
Weighting is modified market capitalization, so bigger companies get more. Two ceilings interrupt that.
No single stock may exceed 4.0% of the index and no single sector may exceed 25%. Both are measured at construction, reconstitution and rebalance, so drift in between is tolerated.
A holding that runs hard gets trimmed at the next rebalance instead of compounding into an outsized position.
Annual reconstitution against quarterly rebalance
Composition is reviewed once a year; weights are reset four times a year.
So the roster is fixed for twelve months at a stretch. Schwab’s most recent annual reconstitution document is dated March 31, 2026.
Whatever happens in between, including the kind of drawdown behind why AI stocks fall, does not push a holding out of the index.
The prospectus reports a 30% portfolio turnover rate for the most recent fiscal year; Schwab listed 40.88% as of July 31, 2026.
Why the fund reported 103 names, not 100
The index has 100 components. Schwab reported 103 total holdings as of August 17, 2026.
The gap is permitted by design. The fund keeps at least 90% of net assets in index stocks; the other 10% can hold names bought ahead of an expected addition, corporate-action leftovers, or cash.
The methodology describes the product rather than judging it. Whether a basket that is always late to a new dividend payer belongs in your portfolio is a separate question.
Questions about the SCHD methodology
Why does SCHD exclude REITs?
REITs, master limited partnerships, preferred stocks and convertibles come out of the parent universe before any screening runs. The exclusion is structural, so a REIT cannot score its way in.
How often can SCHD’s holdings change?
Composition is reviewed annually and rebalanced quarterly. Additions and removals happen at the annual review; quarterly events only adjust weights inside the existing roster.
Does a high dividend yield guarantee inclusion?
No. Yield is one of four ranking characteristics, alongside cash flow to total debt, return on equity and five-year dividend growth. Ten consecutive years of dividend payments are also required.
