Market at Peak Valuations? Why This Dividend ETF Is Drawing Smart Money in 2026

The Valuation Puzzle: Why Today’s Stock Market Feels Different

Wall Street wrapped up 2025 with impressive headline numbers. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite posted year-to-date gains of 13%, 14%, and 18% respectively, riding waves from artificial intelligence excitement and Federal Reserve rate cuts. But beneath these celebratory gains lurks an uncomfortable truth: we’re entering 2026 with one of the most expensive stock markets in modern history.

The metric that tells this story most vividly is the Shiller P/E Ratio—a measure that smooths out short-term earnings volatility by using 10-year inflation-adjusted earnings. Since 1871, this ratio has averaged 17.32. Today, it sits at 39.59, a staggering 129% above its 155-year average.

What’s particularly unsettling? The only time valuations climbed higher was in December 1999, just before the dot-com bubble burst. Understanding what a high P/E ratio means becomes critical here: it signals that investors are paying significantly more per dollar of company earnings than historical norms, leaving little room for disappointment.

Historical Precedent Suggests Caution

Over 155 years of market history, there have been just six periods where the Shiller P/E topped 30 for at least two consecutive months. Five of those six instances preceded market declines of at least 20% across major indices. The track record is essentially flawless—elevated valuations eventually correct.

This doesn’t mean timing the market becomes possible, but it does suggest defensive positioning makes sense. With multiple potential catalysts ready to shake Wall Street in 2026, investors need to think carefully about where capital should be deployed.

Enter: The Dividend Strategy

History offers a compelling counter-narrative for those worried about valuations. Research from Hartford Funds and Ned Davis Research, spanning 1973-2024, revealed something striking: dividend-paying stocks delivered average annual returns of 9.2%, more than doubling the 4.31% from non-payers. Equally important, these income-focused companies proved notably less volatile than the broader market.

Dividend stocks provide something that growth-at-any-price strategies don’t: a cushion. When sentiment sours, that steady income stream becomes increasingly valuable.

Why SCHD Stands Out in Today’s Market

The Schwab U.S. Dividend Equity ETF (SCHD) offers an elegant solution for navigating uncertain terrain. It tracks the Dow Jones U.S. Dividend 100 Index, holding 103 predominantly blue-chip companies with proven cash flow generation.

The holdings read like a stability playbook: pharmaceutical names like Merck, Amgen, Bristol Myers Squibb, and AbbVie provide defensive characteristics—people still need medicine in recessions. Consumer staples giants Coca-Cola and PepsiCo offer similar recession resistance. Communication services titan Verizon Communications rounds out essential utilities.

The yield comparison tells the story: the S&P 500 yields a meager 1.12%, while SCHD delivers approximately 3.8%. That’s meaningful income generation in a rising-rate environment.

Perhaps most impressive is the valuation gap. While the S&P 500 trades at a 12-month P/E of 25.63—clearly elevated—SCHD’s constituent companies average just 17.18. This represents genuine value within an expensive market overall.

The Cost Factor

Fees matter, especially when selecting defensive positions. SCHD’s net expense ratio stands at just 0.06%—meaning only $0.60 annually per $1,000 invested goes toward management costs. This substantially beats the 0.16% average for passive ETFs, a difference that compounds meaningfully over decades.

Low turnover in the underlying index keeps expenses down while minimizing tax inefficiency, making this structure particularly sensible for long-term holders seeking stability.

The Takeaway

As valuations sit near dangerous peaks and growth narratives face scrutiny, dividend-focused equity funds offer something increasingly scarce: reasonable valuations paired with income generation. The Schwab U.S. Dividend Equity ETF combines exposure to proven businesses, attractive yield, and minimal costs—a defensive positioning strategy for an environment where caution appears warranted.