Schwab US Dividend Equity: Here’s why SCHD ETF is lagging

The Schwab US Dividend Equity ETF (SCHD) stock price has made some modest recovery in the past few days. The fund was trading at $71.72, the highest level since May 1 of this year. This price was almost 4% from the lowest level this year.

Schwab US Dividend Equity is trailing

The Schwab US Dividend Equity ETF is one of the most popular funds in the US with more than $46 billion in assets. It is one of the most diversified funds in the industry, especially among people interested in regular dividends.

SCHD is an extremely cheap ETF, with an expense ratio of about 0.06%. It has a dividend yield of about 3.6%, making it an average yielder now that short-term government yields are doing much better.

The ETF has underperformed the market. For example, it has dropped by more than 4.92% this year compared to the SPY and QQQ funds that have soared this year.

There are several reasons why the Schwab US Dividend Equity ETF is underperforming the market. First, as I wrote here, it has exposure to regional banks, which came under pressure this year. Financials account for about 14.42% of the total fund.

Second, unlike SPY and QQQ, the fund has minimal exposure to American technology companies. The technology sector accounts for about 13% of the fund. The biggest tech-focused fund in the ETF is Broadcom, which is a semiconductor company.

Third, the company also does not have access to some of the biggest dividend-focused industries like basic materials, energy midstream, real estate, and BDCs among others. Some good quality companies in these industries would help to boost its dividend yield.

SCHD ETF stock analysis

SCHD chart by TradingView

A few months ago, I wrote that Schwab US Dividend Equity ETF had average fundamentals and weak technicals. I then predicted that the ETF would retreat, which happened. The fund dropped to a low of $69, the lowest level in months. 

Recently, however, the fund has staged a strong recovery and managed to move above the 50-day moving average. It has also formed a triple bottom pattern at $69 and moved above the neckline of this pattern at $71.20. 

The ETF has also formed an inverted cup and handle pattern, which is usually a bearish sign. Fortunately, it has invalidated this pattern by moving above $71.15. Therefore, despite its flows, there is a likelihood that the stock will continue rising in the near term as buyers target the key resistance point at $74.20, the highest point on April 18.