The Schwab US Dividend Equity (SCHD) ETF has remained in a tight range this year as investors rotated from growth stocks to value ones as risks rose. The SCHD ETF was trading at $28 on Monday, a few points above the year-to-date low of $26.6. This article explains the top three reasons to buy this blue-chip dividend ETF.
SCHD ETF stock has strong technicals
The first reason to buy the SCHD ETF is that it has strong technicals that point to more upside in the coming months.
The daily chart below shows that the fund has formed two trendlines. Its lower line connects the lowest swings since April 2024. It has always bounced back whenever it dropped to that support level.
The upper side connects the highest swing since May 2022. When these two lines are connected, they point to a rising broadening wedge, also known as a megaphone pattern.
This pattern often leads to a strong bullish breakout over time. In this case, a bullish breakout to its all-time high of $29.18, would imply a 4.50% above the current level.
The SCHD ETF has also remained above the 50-day and 100-day Exponential Moving Averages (EMA). That is a sign that bulls remain in control for now and that its bullish trend will continue to accelerate. A drop below the support at $27 will invalidate the bullish view.
Rotation from growth to value
The other main reason to buy the SCHD ETF is that there will be a rotation from growth to value this year, potentially because of the hefty tech valuations. SCHD has a cheap price-to-earnings ratio of 17, much lower than the S&P 500 index average estimate of 21.
The fund is also much cheaper than the Invesco QQQ ETF average of 32. Therefore, while the tech-heavy Nasdaq 100 index will continue doing well over time, there is a likelihood that investors will move to the SCHD as they hunt for bargains.
A likely reason for this is that there are fears that the artificial intelligence (AI) bubble is about to burst. This explains why most AI stocks, including NVIDIA have plunged in the past few months. In a note to Bloomberg, a top analyst at Boston Partners said:
“The questions about AI are coming at a time when there’s increased uncertainty overall, and at a time when they were priced for perfection, or close to it. That makes them an extremely obvious place for investors who are broadly nervous to take profits.”
Read more: SCHD ETF: brace for big changes on this blue-chip fund next week
Less exposure to tariffs
The other main reason why the SCHD ETF makes sense is that companies in the fund are mostly in the defensive industries. Financials account for 18% of all the companies in the SCHD ETF. The others are in the healthcare, consumer staples, industrials, and energy.
Most of these firms will not be affected by tariffs. For example, ConocoPhilips, the biggest SCHD stock will keep doing well as demand for energy will continue rising over time. The same is true with Chevron, the second-biggest company in the fund.
Verizon, the third-biggest firm in the SCHD ETF will also not be affected since American customers will continue buying their mobile and cable. Other top companies in the fund are Coca-Cola, Bristol-Myers Squibb, Altria, AbbVie, PepsiCo, Amgen, and Merck & Co. Therefore, these stocks will likely continue thriving even when tariffs keep rising.
Additionally, the SCHD ETF has a long track record of dividend growth. Its 10-year compounded annual growth rate (CAGR) is 11.30%, higher than the median estimate of 5.93%.
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