On March 23, SCHD kicked out two of its best-performing holdings and replaced one of them with a stock that’s down 48%. That’s not a malfunction. It’s the whole point.

I’ve held SCHD since 2022. Watched it trail SPY during the AI rally. Collected the quarterly dividends. Reinvested. And every year around this time, the reconstitution creates the same gut reaction: why are we selling winners?

This year the reaction is louder than usual, because the specific moves look painful on paper. Here’s what actually happened and whether SCHD still earns its spot.

Quick Verdict

Factor	Details
What happened	Annual reconstitution completed March 23, 2026
Removed	Valero Energy (~80% YTD), Halliburton (~46.5% YTD)
Added	UnitedHealth Group (down ~48% YTD)
Current yield	~3.45%
YTD performance vs S&P	Dividend ETFs outperforming by ~5%
Still a buy?	Yes, but know what you’re buying

Best for: Long-term income investors who trust rules-based discipline over gut instinct Skip if: You want to ride momentum stocks or need yield above 5%

What SCHD’s Reconstitution Actually Does

Every March, the Dow Jones U.S. Dividend 100 Index (which SCHD tracks) rebuilds itself. The methodology screens for companies with at least 10 consecutive years of dividend payments, then ranks them on four factors: cash flow to total debt, return on equity, dividend yield, and five-year dividend growth rate.

That’s it. No committee picking favorites. No fund manager making a call on energy vs. healthcare. The index runs its screen, ranks the results, and swaps accordingly.

This year, that process produced two notable removals and one headline-grabbing addition.

The Moves That Have Everyone Talking

Out: Valero Energy — Up roughly 80% year-to-date. An energy refining stock that’s been printing money as refining margins widened. The reconstitution formula doesn’t care about price momentum. If Valero’s fundamentals (relative to the screen criteria) no longer rank it in the top 100, it’s gone. Even at +80%.

Out: Halliburton — Up about 46.5% YTD. Another energy name riding the same wave. Same story.

In: UnitedHealth Group — Down approximately 48% after a brutal stretch that includes a DOJ investigation, executive turnover following the assassination of its insurance unit CEO in late 2024, and margin compression across its healthcare segments. The stock got cheap enough relative to its dividend metrics that the screen pulled it in.

That’s the system doing exactly what it’s supposed to do: sell what’s run up, buy what’s fallen down. Value rebalancing. Mean reversion, enforced quarterly.

Does Selling Winners Actually Hurt Returns?

This is the real question, and it’s more nuanced than the Reddit threads suggest.

The case against the reconstitution:

Valero at +80% might keep running. Energy fundamentals are strong. Refining margins haven’t peaked. By selling, SCHD potentially leaves another 20-30% on the table if the rally continues through year-end. Momentum works, and stocks that are going up tend to keep going up, at least over 6-12 month windows.

The case for the reconstitution:

Valero at +80% also has a compressed yield. When a stock’s price doubles, its yield (relative to the dividend payment) drops roughly in half. SCHD is a dividend-quality index. A stock with a lower yield and stretched valuations no longer fits the quality screen. Holding it would mean the index drifts from its mandate.

And there’s the mean reversion argument. Over longer periods (3-5 years), stocks that have run hard tend to mean-revert. The Dow Jones methodology is specifically designed to avoid holding stocks through the entire cycle from cheap to expensive to overvalued.

My honest take: over any single year, the reconstitution will sometimes sell too early and sometimes buy too early. UNH at -48% could drop another 20% before recovering. But over a 10-20 year holding period — which is the only horizon that makes sense for dividend investing anyway — the discipline of buying quality companies at reasonable valuations and selling them when they’re richly priced has compounded well.

SCHD’s 10-year annualized total return is roughly 11%. That includes every reconstitution that “sold too early.”

The UNH Addition: Catching a Falling Knife or Buying Quality Cheap?

UnitedHealth is a polarizing pick right now. The stock has been cut nearly in half. The headlines are ugly. But look at the fundamentals through the SCHD screen’s lens:

• Dividend streak: 15+ consecutive years of payments
• Dividend growth: Averaged ~15% annual increases over the past five years
• Cash flow: Still massive, even with margin pressure
• Yield: Now above 2.5% (was around 1.3% a year ago), which qualifies it for the screen

Is there risk? Absolutely. The DOJ investigation could lead to fines or operational restrictions. Healthcare policy changes could compress margins further. This isn’t a safe stock right now — it’s a beaten-down blue chip that the quant screen flagged as undervalued relative to its dividend quality.

SCHD isn’t saying “UNH is going up.” It’s saying “UNH pays a reliable, growing dividend and is now cheap enough to meet our criteria.” Different claim. Whether the stock recovers in 2026 or 2028 matters less to SCHD holders than whether the dividend keeps growing — and UNH has raised its dividend every year since 2010.

Why Dividend ETFs Are Having a Moment

Here’s some context that gets lost in the reconstitution debate: dividend ETFs are broadly crushing the S&P 500 in 2026.

The S&P is down 5.4% year-to-date. Tariff uncertainty, geopolitical volatility, and a Fed that’s holding rates steady at 3.5-3.75% are punishing growth and momentum names. Meanwhile, dividend payers — the boring, cash-generating kind — are outperforming by roughly 5 percentage points.

And money is flowing accordingly. The Global X SuperDividend ETF pulled in $60 million in March alone. That’s its largest monthly inflow in 12 years. Investors aren’t just talking about income. They’re moving capital toward it.

This is the environment SCHD was built for. When growth stumbles and volatility spikes, companies with strong cash flows, manageable debt, and consistent dividends become the relative safe haven. The reconstitution is a sideshow. The bigger story is that the income trade is working.

SCHD vs. JEPQ: Starkly Different Income Math

I wrote about JEPI’s covered call trade-offs last week, and the comparison to JEPQ is worth revisiting here because the yield gap is massive:

Factor	SCHD	JEPQ
Current yield	~3.45%	~11.18%
Income source	Company dividends	Options premiums
5-year dividend growth	~12% annually	N/A (premiums fluctuate)
NAV trend	Upward over time	Flat to slightly declining
Tax treatment	Mostly qualified (0-20%)	Mostly ordinary income (22-37%)
2026 YTD performance	Outperforming S&P by ~5%	Depends on Nasdaq volatility

That 11.18% headline yield on JEPQ looks like it buries SCHD’s 3.45%. But run it forward.

If SCHD’s dividend keeps growing at 12% per year (its five-year average), your yield-on-cost after 10 years is roughly 10.7%. After 15 years, it’s over 17%. And the NAV is growing the whole time, so your total position value is increasing while your income compounds.

JEPQ’s 11% yield doesn’t grow. It fluctuates with volatility conditions. In a low-vol bull market, it could drop to 7-8%. And the NAV erodes as the covered call strategy systematically caps upside. You’re withdrawing from principal, not compounding it.

$100,000 invested, 10-year projection (rough math):

• SCHD: ~$110,000 in cumulative dividends + portfolio worth ~$260,000 = ~$370,000 total
• JEPQ: ~$115,000 in cumulative distributions + portfolio worth ~$100,000-110,000 = ~$215,000-225,000 total

SCHD wins by $140,000+. The gap widens every year after that.

The only scenario where JEPQ is the better call: you’re already retired, you need maximum monthly cash flow right now, and you don’t care about total return or leaving a bigger portfolio to heirs. That’s a legitimate use case, but it’s narrower than the YouTube crowd suggests.

What I’m Doing With My SCHD Position

Nothing. That’s the whole point.

I watched Valero get removed. I saw UNH get added. My instinct said “that looks wrong.” But my instinct also said to sell SCHD during the AI rally when it was trailing SPY by 15+ points, and I’m glad I didn’t.

The reconstitution is the discipline I’m paying 0.06% expense ratio for. If I wanted to override the index every time it made a move I disagreed with, I’d just pick individual stocks. And I’m not good enough at that to beat a rules-based system over 20 years. Almost nobody is.

I’ll keep adding on my normal schedule — same amount every month, reinvesting dividends, ignoring the noise. If anything, the outperformance vs. S&P this year validates the allocation. When the high-yield savings rates eventually drop below 4% as the Fed cuts, more of my cash reserve will move into SCHD.

How to Think About SCHD’s Reconstitution

Three questions to ask yourself before reacting:

1. Are you holding SCHD for income or for total return? If income, the reconstitution is working in your favor by maintaining the dividend quality screen. If total return, you should probably own VTI or VOO instead and stop worrying about what’s in a dividend index.

2. What’s your time horizon? If it’s under 5 years, the reconstitution’s short-term effects on your returns are real. If it’s 10+, they’re noise. The compounding math overwhelms any single year’s trades.

3. Do you trust rules over gut feelings? The entire premise of index investing is that systematic rules beat human judgment over time. If the reconstitution bothers you, you might not actually believe in passive investing. And that’s okay — but then own it and pick your own stocks.

The Bottom Line

SCHD sold two stocks up 80% and 46.5%. It bought a stock down 48%. That looks wrong. It might even be wrong this year — Valero could keep ripping, UNH could keep falling.

But over the next decade, a discipline that forces you to buy dividend-quality stocks when they’re cheap and sell them when they’re expensive has a long track record of compounding wealth. That’s not a guess. That’s what SCHD has done since 2011.

The reconstitution isn’t the risk. The risk is reacting to it.

At 3.45% and growing, with dividend ETFs outperforming the S&P by 5 points in a volatile year, SCHD is still the core income holding for anyone who doesn’t need a double-digit yield today. It’s not flashy. The reconstitution headlines make it look reckless. But the math — run forward 10 years, not backward 3 months — still works.

Boring wins. It usually does.

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Based on personal SCHD holdings since 2022. Returns and yields are approximate as of March 2026. This is not financial advice. Reconstitution details based on Dow Jones Index methodology and reported changes. Verify current holdings and yields before making investment decisions.