Why the Highest Dividend-Paying Stocks ETF Could Be Your 2026 Sweet Spot

A Compelling Valuation Setup

The investment landscape has shifted dramatically as we enter 2026. While the broader market surged ahead, certain segments have lagged, creating what many investors view as a golden opportunity. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) exemplifies this pattern perfectly.

Consider the numbers: the fund delivered merely 1% returns throughout 2025, dramatically underperforming the S&P 500’s robust 17% gain. Yet this apparent weakness masks an attractive setup. The fund’s portfolio now trades at approximately 17 times earnings with a 3.7% dividend yield—substantially cheaper than the S&P 500’s 25+ earnings multiple and 1.1% yield. The broader market’s valuation sits well above its historical mid-teens average, while dividend yields hit near-record lows—the inverse of where the highest dividend-paying stocks in the world currently stand.

Building a Portfolio of Quality Dividend Growers

SCHD’s investment thesis centers on tracking the Dow Jones U.S. Dividend 100 Index, which identifies the 100 best-performing high-yield dividend companies. The fund employs rigorous screening criteria examining dividend yield alongside five-year dividend growth trajectories. This methodology ensures exposure to genuine quality rather than yield-chasing.

Bristol Myers Squibb currently anchors the portfolio at 4.2% allocation, embodying the fund’s philosophy. This pharmaceutical powerhouse maintains a 4.7% dividend yield while boasting an impressive growth narrative—17 consecutive years of increases and 94 years of consecutive payments. The company’s recent 1.6% raise reflects its commitment to shareholders. Similarly, Lockheed Martin, ranked third at 4.1%, demonstrates steadfast commitment with its 2.8% yield and 23-year streak of annual increases, including October’s 5% boost.

The fund’s latest reconstitution in March showcased compelling metrics: average holdings yielded 3.8%, with five-year average annual dividend growth of 8.4%. This combination delivers both immediate income and capital appreciation potential.

The Long-Term Performance Case

History provides powerful evidence supporting dividend growth investing. SCHD has delivered consistent double-digit returns, averaging over 10% annualized across the past 3-, 5-, and 10-year periods since its 2011 inception. This aligns precisely with dividend growth stock trajectories—Hartford Funds and Ned Davis Research data shows dividend growers in the S&P 500 returning 10.2% annually over 50 years.

The 2025 underperformance represents a temporary deviation rather than a structural weakness. Mean reversion suggests dividend-focused strategies should realign with historical patterns, particularly when valuations have compressed this significantly relative to growth-heavy indices.

Strategic Accumulation in 2026

The convergence of attractive valuations and historical performance patterns creates a compelling case for expanding positions in highest dividend-paying stocks in the world—particularly through diversified vehicles like SCHD. The fund’s 100 holdings represent the cream of quality dividend payers, each possessing track records of reliable payment increases and operational stability.

This portfolio construction offers a dual-purpose framework: establishing a sustainable income stream while capturing appreciation as the market reprices dividend strategies to more historically normal valuation levels. For investors balancing current yield generation against long-term wealth building, the timing appears particularly opportune as we navigate 2026’s investment landscape.