SCHD ETF is firing on all cylinders: what next in September?

The Schwab US Dividend Equity (SCHD) ETF had a spectacular performance in August as it surged to its highest level on record. The fund soared to a high of $84.53 on Friday, up by over 30% from its lowest point in November.

This year, Its total return stood at 13% compared to the SPDR S&P 500 (SPY) fund, which jumped by 19.3%. It has also lagged behind the market in the last 12 months as its gains stood at 17.6% vs the SPY ETF’s 26%.

Earnings season

The SCHD ETF’s performance is notable because it lacks a big exposure in two key sectors of the US economy. Unlike most funds, it does not have a big exposure to the technology companies like Nvidia, Microsoft, and Apple, because these firms tend to have a low dividend yield. Tech consists of just 8.79% part of the fund.

The SCHD ETF also has no presence in the real estate sector, which is notable since REITs have some of the highest dividend payouts in the US. For example, companies like Realty Income and Simon Property Group have a yield of over 5%. 

It also lacks exposure in other industries that pay a big dividend like Business Development Companies (BDCs) like Ares Capital, Main Street Capital, and Golub Capital. SCHD also has not invested in MLPs like Energy Transfer and Enterprise Product Partners (EPD).

The fund’s strong performance in August happened as most constituents published strong financial results and as hopes of a Federal Reserve interest rate cut rose. 

Most of its constituent companies published strong results in September. Lockheed Martin stock has jumped by over 25% this year, helped by the ongoing investments in defense by most western governments. It also restarted deliveries of its F-35 planes, which will lead to more profitability growth.

Analysts are highly optimistic about Lockheed Martin, with their average revenue estimate for the year being $71.09 billion, a 5.2% increase from 2023. It is also expected to make over $73.97 billion in the following year. Historically, LMT has done much better than analyst expectations, which may continue in the coming years.

AbbVie, the next big company in the SCHD ETF has also done well this year as it jumped by over 26%. Like LMT, the company also published strong financial results and boosted its forward guidance. Its earnings per share was $2.95, higher than expectations by $0.09. Analysts believe that its revenue will hit $55.7 billion this year.

Blackrock’s assets and revenues are rising

Blackrock, the third-biggest company in the SCHD, has done well but underperformed the market this year as it jumped by 11%. The firm has benefited from the rising stock prices and its assets surge. It ended the last quarter with over $10.6 trillion in assets and its growth will continue.

Blackrock’s key catalyst is that it is becoming a big player in the private equity industry. It acquired Global Infrastructure Partners earlier this year and Prequin, a company that provides data on deals in the financial services industry.

Read more: Blackrock vs Blackstone: which is a better stock to buy?

Altria, another top company in the fund, did well as its stock surged to its highest point on record.

Still, not all companies in the SCHD ETF did well in August. Home Depot, the fifth-biggest company in the fund, reported relatively weak financial results that demonstrated that the industry and consumer spending were slowing.

Cisco Systems stock has barely moved this year as the company’s growth also decelerated. Other top laggards were companies like Texas Instruments, UPS, and Ford.

The Schwab US Dividend Equity ETF will likely have a calm performance this month since most companies have already delivered their quarterly earnings. 

Therefore, the key catalyst to watch will be the Federal Reserve, which will publish its interest rate decision later this month. Analysts expect the bank will start cutting interest rates since there are signs that the economy is doing well.

Historically, stocks do well when the Fed is cutting rates as investors tend to rotate to shares from bonds. However, some of the top gainers are companies in the technology industry, meaning that the SCHD ETF may lag the market.

SCHD ETF technical analysis

The weekly chart shows that the SCHD ETF has done well in the past few years. After bottoming at $33.26 in 2020, the fund has jumped to a record high of $84.53. 

Earlier this year, it jumped above the key resistance point at $74.54, where it found a barrier in 2022 and 2023. It has also moved above the 50-week and 100-week Exponential Moving Averages (EMA).

The Relative Strength Index (RSI) has pointed upwards, meaning that it has momentum. Therefore, the Schwab US Dividend Equity ETF will likely continue rising in October as buyers target the key resistance point at $90.

However, I still believe that investing in low-cost funds that track the S&P 500 and the Nasdaq 100 indices is a better approach to grow wealth.