Schwab ETF Reconstitution Impacts Dividend Stock Landscape

Market changes are on the horizon as the Schwab U.S. Dividend Equity ETF makes significant adjustments in its portfolio. The annual reconstitution has led to the removal of underperforming dividend stocks like 3M, while new entrants like Vail Resorts signal potential for higher-quality investments.

Date: 26-03-2025

AI Rating: 7

Major Portfolio Changes for Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF, which manages over $77.5 billion, focuses on high-quality dividend stocks. Recently, it underwent a reconstitution that resulted in the removal of 23 companies, including 3M and Broadcom, and the addition of new stocks like Vail Resorts and Hershey Foods.

One significant detail is the removal of 3M, which slashed its quarterly dividend from $1.51 to $0.70 last May, breaking its 64-year streak of dividend growth. This move raises concerns about 3M's sustainability as a dividend stock, warranting close investor scrutiny on its financial recovery capabilities.

On the other hand, Broadcom, while still increasing its dividend by 11% last year, was removed from the ETF due to its low dividend yield, which has regressed to 1.2%, compared to the S&P 500 average of 1.3% and the overall market average of 3.5%. This could signal a shift in investor preference towards higher yielding options.

In addition to these deletions, new stocks like Vail Resorts, yielding 5.5% with a robust dividend growth history, and Hershey Foods, raising dividends by 15%, have been added, indicating a positive shift in the quality of dividend income from this ETF. These changes could provide better returns for dividend-oriented investors.

Stocks: MMM AVGO MTN HSY