SCHD Slides as Treasury Yields Hit a 24-Year High and Bonds Outbid Dividends

The Schwab U.S. Dividend Equity ETF (SCHD) closed at $32.72 on October 2, about 6.5% below its roughly $35 peak in August and down more than 5% over the past month. The selling has tracked a surge in Treasury yields: the 10-year note touched 5.342% on October 1, its highest level since April 2002, and closed at 5.28% on October 2. For income investors, a fund yielding about 3.2% now has to compete with a government bond paying more than 2 percentage points above that.

What SCHD is

SCHD is an exchange-traded fund from Charles Schwab that tracks the Dow Jones U.S. Dividend 100 Index. It holds about 100 U.S. stocks, with 103 positions and roughly $94.9 billion in net assets as of May 31, 2026, and it has since grown to more than $100 billion in assets. It charges an annual expense ratio of 0.06%, among the lowest of any dividend fund. Its three largest holdings as of May 31 were Qualcomm (6.7%), Texas Instruments (5.9%) and UnitedHealth Group (5.1%).

The index does not simply pick the highest yields. A company must first have paid dividends for at least 10 consecutive years, a requirement that is for payments, not increases, and must pass size and liquidity screens. The index then ranks the remaining stocks on four fundamentals: cash flow relative to total debt, return on equity, dividend yield, and five-year dividend growth. The top 100 are weighted by market capitalization, with no single stock above 4.5% and no industry above 25% at rebalancing. Real estate investment trusts are excluded.

Why investors prefer it

• Quality over raw yield. Ranking on cash flow to debt and return on equity is meant to screen out “yield traps,” stocks whose high payouts signal a business in trouble.
• A rising payout. The September 2026 distribution of 26.65 cents per share was about 2% above the 26.04 cents paid a year earlier. Dividend growth is the main feature that separates it from a fixed-coupon bond.
• Low cost. At 0.06% a year, the fund keeps more of its dividends in shareholders' pockets than most income funds.
• Strong results before this pullback. SCHD returned about 20% so far in 2026, ahead of both the S&P 500 and the Nasdaq-100, and its adjusted price is up about 226% over ten years.
• Steady investor demand. The fund has taken in more than $20 billion of inflows so far this year, according to ETF Trends, making it the largest dividend ETF.
• Tax treatment. Most of its dividends generally qualify for lower tax rates than the interest on Treasuries or on higher-yield funds that hold REITs, though this depends on each investor's situation.

Why it is falling as yields rise

1. Bonds are paying more than dividends. A 3.2% dividend yield looks thin next to a 5.28% 10-year Treasury, and even the 13-week Treasury bill yields 4.11%. Income-focused money that treated dividend ETFs as a bond substitute has a risk-free alternative that pays more.

2. A higher discount rate lowers stock values. The 10-year yield is the benchmark used to discount future cash flows. When it rises, the present value of future dividends and earnings falls, which puts pressure on equity prices even for stable companies.

3. Borrowing costs squeeze some holdings. Companies that rely on debt to fund investment or buybacks face higher financing costs, which can limit how fast they raise dividends. SCHD's screen on cash flow to debt cushions this, but it does not remove it.

What is pushing yields up

The move is not a U.S.-only story. A global bond selloff has pushed up yields in Europe and Japan, where the 10-year yield is at its highest since 1996, and has cut into demand for Treasuries from foreign buyers. Oil prices tied to the Iran war and the closed Strait of Hormuz have revived inflation fears. Federal debt near 120% of GDP adds to the supply of Treasuries, and the Treasury doubled its long-bond buybacks to $4 billion in August to calm the market. Even a weaker-than-expected jobs report on October 2, which would normally pull yields down, did not stop the 10-year from edging higher.

SCHD versus a 10-year Treasury

The comparison depends on the time horizon. A Treasury locks in a 5%+ payout, but its inflation-adjusted yield is about 2.9% (the 10-year inflation-protected real yield). SCHD starts lower, but it has historically raised its dividend and can also gain in price, while a fixed bond coupon cannot grow.

What to watch

• The 10-year yield near 5.3%. A further rise could add pressure on dividend funds, while a pullback in yields would likely ease it. The yield backed off from its 5.342% high on October 1 before edging up again.
• Chart levels. One analyst view flags SCHD's price below its 50-day average and a possible downside area near $30.80. Technical levels like this are a reference, not a forecast.
• Dividend growth. The next distributions will show whether payouts keep rising despite higher borrowing costs.