If the AI Boom Slows Down, History Says This Is the Smartest Way to Protect Your Long-Term Portfolio
Key Points
SCHD provides instant exposure to the top 100 dividend stocks.
It’s spread across multiple sectors and will be well insulated from an AI slowdown.
The artificial intelligence (AI) market's breakneck expansion over the past few years sparked a buying frenzy in the sector's top chip and infrastructure stocks. Those soaring stocks -- including Nvidia, Broadcom, and Amazon -- propelled the S&P 500 (SNPINDEX: ^GSPC) to record highs.
According to Grand View Research, the global AI market could still expand at a 30.6% CAGR from 2026 to 2033. However, the S&P 500 also looks historically expensive at 29 times earnings, and a growing list of challenges -- including inflation, fears of rate hikes, and geopolitical conflicts -- could trigger a slowdown in AI spending and take down those top stocks.
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So if you're worried about an AI slowdown taking a big bite out of your portfolio, you should consider shifting some of your cash into the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), one of the market's most popular dividend-oriented ETFs.
Why is SCHD a resilient all-weather investment?
SCHD, which holds $112 billion in assets, passively tracks the Dow Jones U.S. Dividend 100 Index. To join that index, a stock must already be included in the Dow Jones U.S. Broad Market Index (excluding real estate investment trusts), have a market cap of at least $500 million, and have raised its dividend annually for at least ten consecutive years.
Those eligible stocks are then ranked by their dividend yields, 5-year dividend growth rates, return on equity, and free cash flow (FCF) to total debt ratio. Only the 100 highest-ranked stocks make the cut, and a single stock's weight in the portfolio is capped at about 5%. Individual sectors also can't account for more than 25% of the index.
Therefore, investing in SCHD gives you instant exposure to the 100 strongest dividend-paying stocks on the market for a low expense ratio of 0.06%. Its top holdings include Merck (4.9% of its portfolio), Amgen (4.8%), Abbott Laboratories (4.7%), Coca-Cola (4.2%), and Chevron (4.1%).
Its diversification across multiple sectors makes it a resilient all-weather investment, and a safe place to park your cash if the top AI stocks fizzle out. It has paid a trailing yield of 3.1% over the past 12 months and will continue to reward its patient investors with steady income.
Over the past ten years, SCHD has generated a total return of 243% with reinvested dividends. Past performance never guarantees future returns, but staying invested in this ETF should remain a smart way to protect your long-term portfolio from future market downturns.
Leo Sun has positions in Amazon and Coca-Cola. The Motley Fool has positions in and recommends Abbott Laboratories, Amazon, Amgen, Broadcom, Chevron, Merck, and Nvidia. The Motley Fool has a disclosure policy.