SCHD ETF's $100.8B Portfolio Faces Patent Cliff Risk

The Schwab U.S. Dividend Equity ETF (SCHD) is a favorite among retirees due to its 100-stock structure and rock-bottom fees. However, a closer look at its top four holdings reveals that Merck (MRK) faces a patent cliff that could quietly reshape its income story after 2028.

Fund Details

SCHD manages $100.8 billion in assets, investing in high-dividend stocks with sustainable payouts. Its top holdings include Merck (MRK), Coca-Cola (KO), Lockheed Martin (LMT), and Chevron (CVX).

Merck's Patent Cliff

Merck relies heavily on patents for key drugs like Keytruda, which expire after 2028. Patent expiration allows generic competitors to enter the market, potentially slashing Merck's revenue and its ability to maintain steady dividends.

Sector Context

Major pharmaceutical companies face similar challenges with patent expirations. However, Merck's pipeline of new drugs may offset some losses.

What This Means for Investors

SCHD investors should monitor Merck's developments closely. If Merck's earnings decline, the fund may reduce its weighting or replace it, impacting dividend yields. However, the fund's diversification across other holdings mitigates risk.