If you’ve spent any time on Finance YouTube or scrolling through r/dividends lately, you know that the Schwab U.S. Dividend Equity ETF—better known by its ticker SCHD—is basically the "holy grail" for income seekers. People love it. It’s cheap, it’s consistent, and it usually beats the pants off other dividend funds. But lately, things have felt... a little off.
It’s the energy stocks.
Honestly, it’s kind of funny how quickly the narrative shifts. A few years ago, everyone was complaining that SCHD didn't have enough "oomph" because it was too heavy on boring stuff like Pepsi and Home Depot. Now, after the big 2025 rebalance, the fund is sitting on a mountain of oil and gas names. We’re talking about a 20.4% weighting in the energy sector as of mid-January 2026. Compare that to the S&P 500, which barely keeps 3-4% in energy, and you start to see why some investors are sweating.
The Energy Trap: Why SCHD Is So Heavy on Oil Right Now
So, why did this happen? It’s not like the managers at Schwab woke up one day and decided to become oil barons. It’s the math.
The Dow Jones U.S. Dividend 100 Index, which SCHD tracks, uses a very specific four-part screen: cash flow to debt, return on equity, dividend yield, and dividend growth. Because many energy companies have spent the last few years cleaning up their balance sheets and hiking payouts, they started looking like "quality" stocks to the index’s algorithm.
Essentially, companies like Chevron (CVX) and ConocoPhillips (COP)—which are now top-five holdings—checked every single box. They had the cash. They had the yield. And they had the growth. But that creates a massive concentration risk that most passive investors aren't prepared for. When one out of every five dollars you invest is tied to the price of a barrel of crude, you aren't just a "dividend investor" anymore. You’re a commodity speculator, whether you like it or not.
Real Talk About Schwab Dividend ETF Energy Stocks Risk
Let’s be real: energy is probably the most bipolar sector in the entire stock market.
One week, geopolitical tensions in the Middle East or South America (like the ongoing uncertainty in Venezuela) send prices skyrocketing. The next week, a "global supply glut" or a warm winter in Europe sends those same stocks into a tailspin. For a fund that is supposed to be "low volatility," having 20% of the portfolio in a sector that can drop 5% in a single afternoon is... well, it's a lot.
The Problem With "Indicated Yield"
There’s a specific nuance here that many people miss. Energy companies often use variable dividends or special payouts when oil is at $90 a barrel. SCHD’s methodology looks at these yields to pick its winners. But if oil drops to $60, those dividends can vanish or get slashed fast.
- Chevron (CVX): ~4.19% weight
- ConocoPhillips (COP): ~4.15% weight
- SLB (SLB): ~2.74% weight
When you see names like SLB (formerly Schlumberger) and Valero in the top mix, you have to realize these aren't "set it and forget it" utility stocks. They are cyclical monsters. If the 2026 economic outlook stays "risk-on" as some analysts like Jan van Eck suggest, maybe energy holds its own. But if we see a manufacturing slowdown, that 20% exposure is going to hurt.
Concentration vs. Diversification
Compare SCHD to something like Vanguard’s VYM. VYM is a "broad" dividend fund. It holds over 500 stocks and only keeps about 8% in energy. It’s boring, but it’s stable.
SCHD only holds about 100 stocks. That means when it goes "all in" on a sector like energy, it really goes all in. You've basically got a concentrated bet on the Permian Basin hidden inside your "safe" retirement fund.
Is the 3.8% Yield Worth the Headache?
Currently, SCHD is yielding around 3.8%. That’s solid. It’s better than the 3.2% you might get from HDV or the measly 2.4% from VYM. But you have to ask yourself: is that extra 1% yield worth the sector risk?
In early 2026, we’ve seen a slight rotation. Tech is cooling off after the AI-driven mania of 2024 and 2025, and "value" stocks—the kind SCHD loves—are starting to wake up. That’s the bull case. If the market breadth continues to improve and people stop obsessing over the "Magnificent Seven," SCHD could have a monster year.
But—and this is a big but—energy has been an underperformer for a while now. If oil prices stay muted because of high production in the U.S. and Guyana, those energy stocks are going to act like an anchor on the fund's total return.
What You Should Actually Do
If you’re holding SCHD, don’t panic and sell everything because you saw a scary number. It’s still a world-class ETF with a 0.06% expense ratio. That’s practically free. However, you need to look at your total portfolio.
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If you already own a bunch of individual energy stocks or an energy-heavy fund like XLE, you are way over-exposed. Honestly, most people should probably check if their "diversified" portfolio is actually just three different versions of the same oil bet.
Actionable Next Steps:
- Audit Your Sector Weighting: Open your brokerage app. If SCHD is more than 30% of your total portfolio, you currently have a ~6% total exposure to just Chevron and ConocoPhillips. Is that what you intended?
- Check Your Tech Balance: Since SCHD has almost zero exposure to high-growth tech (around 8-9%), you might want to pair it with a growth fund like SCHG or QQQM to balance out the "old economy" energy risk.
- Watch the March Rebalance: SCHD rebalances every March. Mark your calendar for March 2026. The index will refresh its rules, and we might see that energy weight drop if the "quality" scores of those companies have dipped.
- Income vs. Total Return: Decide if you need the cash now. If you're 25 and don't need the dividends, the volatility of a 20% energy tilt might not be worth the slightly higher yield compared to a total market fund.
At the end of the day, SCHD is a "quality" fund, not an "energy" fund. It just happens to think energy is high quality right now. Whether the market agrees with that math is the $76 billion question for 2026.