Why One Investor Dumped SCHD for Diversified Portfolio

The Schwab U.S. Dividend Equity ETF (SCHD) had been the cornerstone of one Redditor’s investment strategy, serving as their largest holding until late September 2025. While SCHD has established itself as a solid dividend ETF with consistent payouts—delivering dividends of around 26 cents as of September 29, 2025—its limitations became increasingly apparent to the investor. With a yield typically ranging between 3-4%, generating substantial income would require an enormous capital base: approximately $2 million invested to earn about $80,000 per year in dividends.

The fundamental issue with SCHD, as identified by the investor, was its constrained capital appreciation potential. As a dividend-focused ETF rather than a growth-oriented fund, SCHD alone wasn’t positioned to help the investor achieve their long-term financial objectives. This realization prompted a strategic reassessment, leading to the conclusion that maintaining such a concentrated position in a single dividend ETF no longer aligned with their investment goals, especially during a period of market volatility.

The investor’s new portfolio represents a significant departure from their previous SCHD-heavy approach, incorporating a carefully selected mix of income generators and growth opportunities. Realty Income (NYSE:O) emerged as a key replacement, offering a compelling 5.41% dividend yield coupled with an impressive 17.91% year-to-date return as of October 3, 2025. This combination of higher yield and substantial capital appreciation provided immediate benefits over the SCHD position.

Main Street Capital (NYSE:MAIN) added another dimension to the portfolio, delivering a robust 15.24% YTD return while maintaining a consistent income stream through its 25-cent dividend. The investor also incorporated ExxonMobil (NYSE:XOM), which provides both growth potential with its 6.33% YTD return and reliable passive income through its quarterly dividend of 99 cents. Perhaps the most dramatic addition was RTX (NYSE:RTX), which has generated an extraordinary 46.10% YTD return while offering a quarterly dividend of $0.68, creating a powerful combination of capital growth and income.

The portfolio does include one higher-risk position in Starbucks, which the investor acknowledges represents a turnaround situation requiring careful monitoring. However, this single speculative holding is balanced against multiple established cash-flow generators and defensive positions, creating an overall risk profile that remains manageable.

The transition from a SCHD-centric approach to a diversified portfolio addresses several critical investment principles. Most importantly, it eliminates single-asset concentration risk while creating a more balanced exposure across different cash-flow types. The new portfolio encompasses property cash flow through Realty Income, staple cash cows like ExxonMobil, defense sector exposure via RTX, and consumer growth potential through Starbucks—a far broader risk distribution than the previous SCHD-only strategy.

This diversified approach also better balances growth and stability objectives. While SCHD primarily focused on dividend income with limited appreciation potential, the new portfolio maintains income generation through higher-yielding positions while simultaneously capturing significant growth opportunities through stocks like RTX and MAIN. The inclusion of government contract-backed revenue sources through RTX adds another layer of stability, reducing overall portfolio volatility.

The investor’s strategy emphasizes ongoing portfolio management through regular monitoring and quarterly reviews to ensure proper balance across sectors. This proactive approach allows for timely rebalancing and sector adjustments as market conditions evolve, representing a more dynamic investment methodology than the previous set-and-forget approach with SCHD.

This case study illustrates an important evolution in dividend investing strategy: moving beyond pure yield-chasing to incorporate total return considerations. While SCHD remains a respectable dividend ETF for certain investors, its limitations become apparent for those seeking both income and meaningful capital appreciation. The requirement of $2 million to generate $80,000 annually represents a significant barrier for many investors pursuing financial independence.

The Redditor’s experience demonstrates that a carefully constructed portfolio of individual dividend stocks and growth opportunities can potentially offer superior risk-adjusted returns compared to a single dividend ETF. By combining higher-yielding REITs like Realty Income with growth-oriented dividend payers like Main Street Capital and sector leaders like ExxonMobil and RTX, investors can create a more resilient income stream while maintaining exposure to capital appreciation.

This approach doesn’t necessarily mean completely abandoning dividend ETFs, but rather recognizing their limitations within a broader investment framework. The key takeaway for other investors is the importance of regularly assessing whether current holdings align with long-term financial goals and being willing to make strategic changes when misalignments emerge—exactly what prompted this investor’s decisive move away from SCHD.