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Written by Reuben Gregg Brewer for The Motley Fool
Schwab U.S. Dividend Equity ETF uses a complex screening process to select stocks.
The ETF has risen smartly so far in 2026, actually outperforming the S&P 500 index.
Income investors may still want to step back and look at high-yielding PepsiCo, Enterprise, and Realty Income.
Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has had a great year so far in 2026, up roughly 20% as of this writing. That's way better than the S&P 500 index (SNPINDEX: ^GSPC), which is up "only" about 13%. And Schwab U.S. Dividend Equity ETF offers a compelling, and above-market, 3% yield. Only you can do better than that if you buy individual stocks, such as PepsiCo (NASDAQ: PEP), Enterprise Products Partners (NYSE: EPD), and Realty Income (NYSE: O), all of which yield over 4%.
Schwab U.S. Dividend Equity ETF tracks an index, but that index isn't just a rote list of stocks. It is created using a screening approach. The first step is to consider only companies with at least 10 years of dividend increases. Real estate investment trusts (REITs) and master limited partnerships (MLPs) are excluded from consideration because of their unique business structures. Then a composite score is created based on cash flow-to-total debt, return on equity, dividend yield, and a company's five-year dividend growth rate. The 100 stocks with the highest scores are included in the index.
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Basically, the ETF aims to own well-run, growing businesses with attractive yields and rising dividends. That's paid off so far in 2026, though sometimes the ETF can lag the market. However, if you are looking for high-yield investments, Schwab U.S. Dividend Equity ETF's 3% yield may be a bit low for you. Which is why you may want to look at some individual stocks.
If you are looking for reliable dividend payers, you can't get much more reliable than a Dividend King. Stringing together 50+ annual dividend increases requires a strong business model that gets executed well in both good times and bad. PepsiCo is a Dividend King and, perhaps not surprisingly, also one of the world's largest consumer staples companies.
That said, the company isn't hitting on all cylinders right now. But history suggests it will get back on track. And with operations in the snack, beverage, and packaged food spaces, it has multiple levers to pull in that effort and to support long-term growth. The best part, however, is that investors are downbeat on the stock right now, pushing the yield up to a historically high 4.5%. And, in case you were wondering, Schwab U.S. Dividend Equity ETF owns PepsiCo, so you aren't going far afield here.
As a master limited partnership (MLP), Enterprise Products Partners isn't even considered for inclusion in Schwab U.S. Dividend Equity ETF. That's a shame, because it offers a 5.8% distribution yield backed by 28 annual distribution increases. That's basically as long as Enterprise has been publicly traded. The distribution is backed by a fee-based energy business, with the MLP effectively charging tolls for the use of its energy infrastructure assets.
What is most exciting is that Enterprise's business isn't really exposed to volatile energy prices. That means you can get energy exposure while sidestepping the commodity risk you'd take on if you bought an oil producer. It's an attractive alternative to an energy company like Chevron (NYSE: CVX), which is in Schwab U.S. Dividend Equity ETF.
As a real estate investment trust (REIT), Realty Income is also excluded from Schwab U.S. Dividend Equity ETF. But the REIT's lofty 5.8% yield may interest you just the same. The monthly pay dividend has been increased annually for 31 consecutive years. It is also the largest net-lease REIT, with over 15,500 properties spread across North America and Europe.
Given its size, Realty Income isn't growing quickly. But with a yield that large, income-focused investors probably won't mind. Importantly, size comes with benefits here, as this financially strong REIT enjoys advantaged access to capital markets. That allows it to compete aggressively for acquisitions as it looks to slowly extend its dividend streak year after year.
Schwab U.S. Dividend Equity ETF is a solid foundation for a dividend portfolio. It is hard to suggest that investors shouldn't own it. However, even if you own it, you can still add higher-yielding stocks to your portfolio to boost the income you generate. PepsiCo is in the ETF, but you may want to double up on it while it is out of favor. Realty Income and Enterprise are specifically excluded from the ETF, but they are both reliable, high-yielding options that are worth digging into if you need to generate more income.
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Reuben Gregg Brewer has positions in PepsiCo, Realty Income, and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Chevron and Realty Income. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.