Why the Schwab Dividend ETF Rallied—and Can It Keep Climbing?

Key Points

• The Schwab Dividend ETF just delivered an 8% rally over the past month, which might be only the beginning for this vehicle in the coming quarters.
• A fundamental rotation into high dividend yields is about to begin, with the Fed at the helm of it all.
• Short sellers are fleeing this ETF as institutional investors buy in realizing the upside potential.

Financial markets are a complex flow chart for those who understand how to read demand and supply within the broader context, where everything ties back to the concept of a benchmark. This can affect many spaces equally, but also differently at the same time.

For example, low interest rates create a low return benchmark on assets like bonds, while also potentially creating demand (or flows) in other areas, such as oil and gas. The combinations are endless.

Understanding this concept is part of global macro funds, whose analysts’ main focus is to figure out where money will flow out of and into next, effectively anticipating the new demand cycle. In today’s cycle, investors can see many divergences between technology stocks and other slower (or boring) names in the consumer staples sector, creating an opportunity for a new rotation.

This rotation also stems from the pending economic policy changes to be implemented by the Federal Reserve, where its chairman, Jerome Powell, is set to decide whether interest rates will be cut or not before the end of 2025.

Anticipating this change in terms of yield and benchmarks, the story behind a rally in the Schwab US Dividend Equity ETF NYSEARCA: SCHD begins to make more sense.

Smart Money Gets Ahead of the Race

As of early June 2025, institutional allocators from eCIO Inc. decided to open a position worth up to $22.8 million in this dividend exchange-traded fund (ETF), signaling increased (and recent) interest in such a potential rotation, where dividend stocks might see increased demand in the coming months and quarters.

Investors will see a lot more of that with regard to institutional buying into this ETF, considering that this vehicle declined by up to 3% over the past quarter alone, mainly due to the United States' April tariff announcement.

What’s different about this dip is that the ETF never really recovered back to pre-tariff prices, significantly underperforming the broader S&P 500 index. There’s a reason for that. Today’s investors aren’t focused on slow and stable growth or even income; they are looking to the exciting and potentially dangerous names in the market.

This creates a massive opportunity for those who can look ahead and realize that valuation gaps and price action divergences will eventually need to close under the right catalyst. This is exactly where the Fed's path might act as the match that ignites the fire of capital rotation and demand.

SCHD ETF Primed for Price Rebound

In a lower-interest-rate world, bond yields should also come down. The United States' ten-year Treasury bond yield has been the generally accepted benchmark for yields around the world, so investors can use this metric as the initial point where yield rotation might come into play.

Today, the Schwab Dividend ETF offers a $1.3 per share payout to shareholders via dividends, which translates into an annualized dividend yield of just over 4.8%. On the other hand, the treasury 10-year yield has fallen to just over 4.2%, making this ETF more attractive from a pure yield perspective.

More than just yield, however, is the potential for the overall price action to catch up to the rest of the broader ETFs in the market. This is not a vanity measure or ideal; investors can see this happens in every yield and interest rate cycle without fail.

One example can be taken from the ETF’s largest holding, ConocoPhillips NYSE: COP, during the rate-cutting cycles of 2020 through 2022. As bond yields fell, it was open season for investors to hunt for a better return and some upside if they could add it to the deal.

This is why ConocoPhillips stock, whose dividend yield rose to 6% during 2020 and 2021, triggered a massive rally shortly after.

The stock went from roughly $40 per share to a threefold increase in just two short years, ultimately stopping at just over $130 per share.

There are plenty more examples of such rotations, but investors should now get the picture. This Schwab Dividend ETF is not a name they want to leave out of their watchlists for the coming rate cuts, especially as the price showcases an 8% recovery rally over the past month, along with plenty of room left to catch up to and exceed the pre-tariff levels.

Suppose all of these factors weren’t enough, investors can also consider the 60.7% decline in the ETF’s short interest over the past month, a clear sign of bearish capitulation as short sellers now face an inevitable rotation rooted in some of the strongest fundamentals of financial markets.