The Schwab U.S. Dividend Equity ETF Loaded Up on Energy Stocks. Here Are the Top 3.

Reuben Gregg Brewer, The Motley Fool

Sat, Jun 7, 2025, 3:24 PM 6 min read

• The Schwab US Dividend Equity ETF uses a fairly complicated selection process when it buys stocks.

• During the last rebalancing it increased its exposure to energy stocks.

• 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the most popular dividend exchange-traded funds (ETFs) you can buy. But this fairly complicated product can also help investors who prefer to buy individual stocks, which is a function of the screening process used.

Targeting well-run companies that have high yields, the Schwab U.S. Dividend Equity ETF's recent rebalancing suggests that energy stocks could be a place for dividend investors to focus on today. Here are three top options from the ETF's portfolio.

The 100 stocks within the Schwab U.S. Dividend Equity ETF go through a fairly strict screening process. First, only companies that have increased their dividends for at least 10 consecutive years are looked at. (Real estate investment trusts are removed from consideration.) Then a composite score is created for the remaining stocks.

The score includes cash flow to total debt, return on equity, dividend yield, and a company's five-year dividend growth rate. The 100 companies with the highest scores are included in the ETF. Without getting too deep into each metric, the Schwab U.S. Dividend Equity ETF is attempting to focus on high-quality businesses that have both growth potential and attractive yields. This is basically what most dividend investors are trying to do when they pick stocks.

That makes the ETF's portfolio a great starting point for dividend investors. And right now, after the annual rebalancing of the portfolio, energy stocks appear to be an important focus. This sector makes up 21% of the ETF's assets, which is its largest sector weighting. If you haven't been looking at energy stocks, the Schwab U.S. Dividend Equity's portfolio suggests you should be. Its top three energy holdings are ConocoPhillips (NYSE: COP), Chevron (NYSE: CVX), and EOG Resources (NYSE: EOG). Here's a look at each one.

ConocoPhillips has a dividend yield of 3.6%. The dividend has been increased annually for eight years. The annualized dividend growth rate over the past five years is an attractive 20%. That said, ConocoPhillips is down around 25% or so over the past 12 months, falling even more than the price of oil. That makes complete sense.

ConocoPhillips is a pure-play energy producer. So the top and bottom lines of its income statement are entirely reliant on the price of the commodities it sells. The dividend has a history of being a little on the volatile side, too. And, in fact, it was cut in 2016 during the deep energy downturn at the time. Even if you have a particularly strong stomach and a positive outlook for oil, this is a more aggressive investment option.