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Schwab US Dividend Equity ETF (NYSEARCA: SCHD) pays quarterly distributions from approximately 100 quality-screened US dividend stocks. The fund has $71.6 billion of assets at an expense ratio of just 0.06%, and it tracks the Dow Jones US Dividend 100 Index, which requires 10 consecutive years of dividend payments and screens on debt, ROE, dividend yield and cash flow for dividend growth. That methodology is the first line of defense in the SCHD dividend protection story.
How does the fund generate its yield
SCHD’s income comes from ordinary dividends paid by its underlying holdings. The top 10 positions each account for about 4% of assets and about 41% of the portfolio. Rebalancing occurs each March, so the current names reflect the fact sheet as of December 31, 2025: Bristol-Myers Squibb, Merck, ConocoPhillips, Lockheed Martin, Chevron, Verizon, AbbVie, Cisco, Coca-Cola and Altria. Six of them drive security conversations.
Top Holdings Under the Microscope
AbbVie (NYSE:ABBV | abbv price prediction) accounts for 3.99% of the fund. Q1 2026 revenue up 12% to $15 billion, Skyrizi up 31% to $4.48 billion. AbbVie raised full-year adjusted EPS guidance to $14.28 from $14.08 and raised its dividend to $1.73 per quarter, the fifth consecutive annual increase. The decline of Humira is real, and immunology successors are filling the gap. Coverage looks solid.
coca cola (NYSE:KO) is a textbook aristocrat. Operating margin expanded to 35% in Q1 2026, free cash flow increased 132% to $1.76 billion, and full-year FCF guidance is closer to $12.2 billion versus the dividend, which increased by $0.53 per quarter. This is the 63rd consecutive annual increase. There is no realistic scenario in which this payment is at risk.
beam (NYSE:CVX) pays $1.78 per quarter for a yield near 4.2%. Q1 free cash flow went negative to -$1.55 billion due to working capital timing and derivatives mismatches, but full-year 2025 FCF of $16.6 billion and 16 consecutive quarters of over $5 billion in shareholder returns tell the real story. Chevron’s 39-year streak of increases shows committed management that the cyclical trough is unlikely to be broken.
Lockheed Martin (NYSE:LMT) is the nearest call. Free cash flow in Q1 was $291 million, while dividends paid were $816 million, and program fees reached the F-16, C-130, and CH-53K. Management reaffirmed FY26 FCF from $6.5 billion to $6.8 billion and raised the dividend by 5% to $3.45 per quarter, its 23rd consecutive increase. Full year coverage remains intact.
Verizon (NYSE:VZ) gives about 6.5% yield and highest assay. Total debt will reach $172.5 billion after the Frontier deal closes on January 20, 2026. Still, free cash flow of $20.1 billion in 2025 covered the $11.5 billion dividend 1.75x, and 2026 guidance calls for FCF of $21.5 billion or more. The increased leverage is a real risk if rates rise, but today’s coverage is comfortable.
merck (NYSE: MRK) reported a GAAP loss of -$1.28 per share in Q1, driven entirely by the $9.0 billion Sidara acquisition charge. KEYTRUDA rose 12% to $8.03 billion, and full-year non-GAAP EPS guidance rose from $5.04 to $5.16, versus a $0.85 quarterly payout. The reported loss is accounting noise, and operating cash generation supports the dividend.
Total return reference and verdict
SCHD has returned 20% year to date and 23% over the last year, with a gain of 227% over 10 years. Earnings sustainability depends on cash-generating businesses, and annual rebalancing removes names that stifle dividend growth. For conservative investors seeking growth and income, SCHD’s distributions are safe. Aggressive income hunters pursuing higher yields will prefer option-based fundsAnd growth-leaning dividend investors might consider peer growth-oriented dividend ETFs that trade current yield for faster payout growth.
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