Microsoft’s Five Years in SCHD

Microsoft was once SCHD’s largest holding. It joined the fund at the 2013 reconstitution, was its biggest single position within weeks, and was removed at the 2018 reconstitution, according to the holdings lists in Schwab’s SEC filings. It has not been back since.

Neither Schwab nor S&P Dow Jones Indices publishes a reason for each removal. The index’s published rules and Microsoft’s own dividend figures, however, point clearly to the most likely cause: as Microsoft’s share price climbed, its dividend yield fell too low to keep its place in a fund that only selects from the higher-yielding half of eligible companies.

FRC’s How to Invest in SCHD course is built from Schwab’s own SEC filings and S&P Dow Jones Indices’ index rules, and explains how SCHD decides which companies to keep and which to drop. The course page has a short video you can watch to decide whether the course is right for you.

This guide is part of FRC’s complete guide to SCHD, which starts with what SCHD is and how it works. FRC’s guide to SCHD’s holdings history covers every company added and removed since 2011.

When Microsoft Joined SCHD

Microsoft was not in SCHD when the fund launched in October 2011. It does not appear in the holdings lists for February 2012, May 2012 or February 2013, and first appears in the list for May 2013, after that year’s annual review.

The timing fits SCHD’s rules. To be considered, a company must have paid dividends for at least ten consecutive years, and Microsoft paid its first dividend in 2003. The 2013 review was the first at which it could show a ten-year record of payments.

Microsoft was one of 16 companies added in 2013, alongside Texas Instruments, Garmin, Analog Devices and Rockwell Automation. It was by far the largest company in that group, and its arrival changed the shape of the fund immediately.

Microsoft Was SCHD’s Largest Holding

Because SCHD weights its holdings mainly by market value, a company of Microsoft’s size went straight to the top. At the end of May 2013, Microsoft made up around 5.2% of SCHD, ahead of Johnson & Johnson at around 4.6% and Chevron at around 4.4%, based on the values in Schwab’s filing.

It stayed near the top for the rest of its time in the fund. It was the largest holding again at the end of November 2013 and May 2015, third at the end of May 2014, fifth at the end of May 2016 and second at the end of May 2017, at around 4.8%, just behind Coca-Cola.

Its weight sometimes rose above the single-stock cap, which was 4.5% at the time. The cap was applied at each quarterly rebalance, and a holding whose price rose between rebalances could drift above it until the next one. The cap was later cut to 4% in June 2020, so many summaries that still quote 4.5% are out of date.

The money involved grew quickly too. SCHD’s Microsoft position was worth around $53 million at the end of May 2013 and around $260 million at the end of May 2017, as the fund grew and Microsoft’s share price roughly doubled.

How SCHD Decides Which Companies Stay

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which is rebuilt every March, with the changes taking effect after the close on the third Friday of the month. Every eligible company is screened and ranked again, and the index is reset to the 100 that qualify.

To be eligible, a company must have paid dividends for at least ten consecutive years and meet minimum size and trading requirements. Eligible stocks are then ranked by their indicated dividend yield, based on the current annual dividend rate and share price, and the bottom half are removed from consideration. The rest are given a composite score that weights four measures equally: cash flow to total debt, return on equity, dividend yield and five-year dividend growth.

Existing members have some protection, because they are kept if they rank within the top 200 on those measures. That protection only applies to companies that pass the yield screen first. A company whose yield falls into the lower half of the eligible group cannot be selected at all, however strong its other scores are.

What Every SCHD Investor Needs to Know

Many investors assume SCHD holds famous companies for good, and that a removal means something has gone wrong with the business. Anyone can tell you SCHD’s dividend yield, but do you understand how its index selects companies, why holdings are removed and what drives its dividend payments?

We’ve gone beyond internet opinions and recycled investment summaries. How to Invest in SCHD is a 21-chapter course built from Schwab’s SEC filings, historical holdings data and S&P Dow Jones Indices’ published methodology, covering SCHD’s holdings history, every reconstitution, its performance and dividends and the mistakes investors make, with study guides, practice questions and an assessment in each chapter. FRC’s three progressive ETF programmes take your knowledge further, from ETF Investing for Beginners, through ETF Investing Strategies, to Advanced ETF Investing.

FRC’s programmes and memberships are open to everyone, whether you are investing $500 or $500,000, and you can get started for less than the cost of a few shares. The question isn’t whether financial education costs money. It’s what a lack of it could cost you.

Why Microsoft Most Likely Left

Microsoft did not cut its dividend. It raised its quarterly payment every year it was in SCHD, from $0.23 a share in 2013 to $0.39 in 2016 and $0.42 from late 2017, an increase of more than 80%.

Its share price rose even faster. Based on the values in Schwab’s filings, SCHD’s Microsoft shares were valued at around $35 each at the end of May 2013 and around $70 at the end of May 2017, and the price rose to the low $90s by the time of the March 2018 review.

When a share price rises faster than the dividend, the yield falls. Using the four quarterly payments before each date, Microsoft’s yield was around 2.6% in May 2013, 2015 and 2016, but had fallen to around 2.2% by May 2017 and to below 2% by early 2018.

Microsoft had no trouble with the other tests. It had a long enough dividend record, little debt compared with its cash flow and a high return on equity, so the yield screen is the only part of the process it was likely to fail.

That is the most likely reason Microsoft was removed. SCHD’s index selects only from the higher-yielding half of eligible companies, and a yield below 2% left Microsoft well below the yields of the companies the index was choosing. The fund’s filings do not state a reason, so this is the explanation the published rules and the dividend figures support, rather than one Schwab has confirmed.

The Price Rise That Shrank the Yield

The pattern is easy to see in round numbers. In 2013, a $35 share paying around 92 cents a year in dividends gave a yield of around 2.6%.

By early 2018, a share priced in the low $90s paying $1.68 a year gave a yield of around 1.8%. The dividend had risen by more than 80%, but the share price had risen by more than 160%.

This is the trade-off at the heart of any yield-based index. A company can become more valuable, more profitable and more generous to shareholders, and still be removed because its yield is no longer high enough compared with other dividend payers.

FRC’s guide to why a high ETF dividend yield can be misleading explains how price movements change a yield without any change in the dividend itself.

Microsoft Left Alongside Other Famous Names in 2018

Microsoft was not the only household name removed in 2018. Comparing Schwab’s holdings lists before and after the review, the index removed 24 companies and added 24, and the removals included Coca-Cola, Johnson & Johnson, McDonald’s and Boeing.

Johnson & Johnson and McDonald’s had both been among SCHD’s ten largest holdings when the fund launched. Coca-Cola was the largest holding at the end of May 2017, just ahead of Microsoft, and was removed at the same review.

Coca-Cola returned in 2019, but Microsoft, Johnson & Johnson, McDonald’s and Boeing have not appeared in any of the later holdings lists in Schwab’s filings. The 2018 review is one of the clearest examples of how much SCHD can change in a single year.

What Microsoft’s Removal Did Not Mean

The removal was not a judgement on Microsoft’s business. SCHD’s index does not use analysts’ forecasts, valuations or views about a company’s prospects; it applies the same mechanical rules to every eligible company each year.

It was also not a decision to avoid technology. Texas Instruments returned to SCHD at the same 2013 review in which Microsoft joined, and was SCHD’s second-largest holding at the end of May 2026, while Qualcomm was its largest at around 6.7%.

Nor was it a decision made by a fund manager. SCHD is an index fund, and Schwab’s role is to track the index, so when a company leaves the index, the fund sells its shares as part of the reconstitution, whatever anyone thinks of the company.

What Happened After Microsoft Left

Microsoft went on to become one of the best-performing large companies in the world, and its share price rose many times over in the years that followed. Investors who compare SCHD’s later returns with Microsoft’s often see the removal as a mistake.

That comparison misses what SCHD is built to do. The fund is designed to hold higher-yielding companies with strong dividend records, not to hold the fastest-growing companies in the market, and Microsoft’s yield kept falling as its price rose.

Microsoft has kept raising its dividend every year since, but its share price has risen much faster. By 2026, its dividend yield was well below 1%, which would leave it far short of the yields SCHD’s index selects from. FRC’s guide to SCHD’s price history shows how the fund performed through the years when growth stocks led the market.

Imagine knowing exactly what you own, why you own it and what could go wrong before it does. How to Invest in SCHD examines the historical evidence, including SCHD’s results against the S&P 500 in the years after 2018, so you can judge the fund on what it is designed to do.

Why SCHD Does Not Hold Apple or Other Tech Giants

The same rule explains why SCHD holds few of the largest technology companies. Apple does not appear in any of the holdings lists in Schwab’s filings from 2012 to 2026, and by October 2026 SCHD held none of the group often called the “Magnificent Seven”.

Each is kept out by one rule or both. Amazon and Tesla pay no dividend, while Alphabet and Meta Platforms only began paying dividends in 2024, so they are years away from a ten-year record. Apple, Microsoft and Nvidia have long enough records, but their yields are well below 1%. Under SCHD’s rules, a company needs both a ten-year record of payments and a yield in the top half of eligible stocks before its other measures are even considered.

That is a deliberate design choice. It gives SCHD a very different mix of companies from a fund that tracks the whole market, which is why FRC’s comparison of SCHD and VOO shows such different results in different years.

Could Microsoft Return to SCHD?

It could, in principle. Microsoft still pays a dividend and has a record of payments stretching back to 2003, so it meets the ten-year requirement.

What it lacks is yield. For Microsoft to return, its yield would need to rise into the top half of eligible companies, which would require either a much larger dividend or a much lower share price, and it would then need to score well enough on the index’s other measures.

Nobody can know whether that will happen. Each March, the index ranks every eligible company again, and the outcome depends on Microsoft’s figures and those of every other dividend payer at that time.

SCHD or Microsoft: Different Investments

Some investors ask whether they should own Microsoft instead of SCHD. They are very different investments, and the choice depends on what each investor is trying to achieve.

Microsoft is a single company, so its results depend entirely on one business. Even one of the world’s most successful companies can fall a long way: after the dot-com bubble burst in 2000, Microsoft’s shares lost more than two-thirds of their value and took many years to recover. SCHD holds around 100 companies across many sectors, chosen for dividend yield, cash flow, return on equity and dividend growth, and replaces weaker members every year.

A growth company like Microsoft may suit investors focused on long-term capital growth and comfortable with the risk of holding a single stock. SCHD is designed for investors who want a diversified portfolio of established dividend payers and a growing stream of income.

FRC’s guide to SCHD’s dividend growth shows how that income has grown since 2012, including years in which the fund’s companies changed significantly.

What Investors Can Learn From Microsoft’s Removal

The first lesson is that SCHD’s rules come before any single company. Being one of the world’s most valuable businesses, or SCHD’s largest holding, gave Microsoft no protection once its yield fell.

The second is that a rising share price can push a company out of a yield-based fund. Investors who expect SCHD to hold its winners indefinitely misunderstand how the index works.

The third is that the fund you own today is not the fund you bought. Microsoft, Coca-Cola, Johnson & Johnson and McDonald’s were all among SCHD’s largest holdings at some point, and the fund’s mix of companies looked very different within a few years. FRC’s guide to SCHD’s longest-held stocks shows how few companies have survived every review.

If you’re putting your hard-earned money into SCHD without understanding how it works, you’re taking unnecessary financial risks. How to Invest in SCHD takes you inside the fund, its holdings, dividend strategy, performance and risks.

How to Check SCHD’s Holdings Yourself

Schwab Asset Management publishes SCHD’s full list of holdings on its fund page, with each company’s weight, and updates it regularly. That is the quickest way to see whether a particular company is in the fund today.

For a dated, official record, Schwab’s shareholder reports and N-PORT filings with the SEC list every holding at the end of each reporting period. Comparing the lists from before and after each March review is how Microsoft’s arrival in 2013 and removal in 2018 can be confirmed.

Third-party websites often show slightly different holdings counts and weights, because they update on different dates. When the figures matter to a decision, the most recent list from Schwab is the one to check.

Common Mistakes About Microsoft and SCHD

Assuming Microsoft was removed because something was wrong with the company. The evidence points to its falling yield, not to any weakness in the business or its dividend.

Assuming SCHD has never owned big technology companies. Microsoft was its largest holding for much of the period from 2013 to 2017, and Texas Instruments and Qualcomm were among its largest holdings in 2026.

Judging SCHD’s rules by one company’s later results. Any index that selects by yield will sometimes remove companies whose shares go on to rise strongly.

Expecting Microsoft to return soon. With a yield well below 1% in 2026, it was far short of the level SCHD’s index selects from.

Common Questions

Did SCHD ever own Microsoft? Yes. According to the holdings lists in Schwab’s SEC filings, Microsoft was added at the 2013 reconstitution and removed at the 2018 reconstitution.

When did SCHD remove Microsoft? At the March 2018 annual review. It appears in the holdings list for the end of May 2017 and is absent from the list for the end of May 2018.

Why did SCHD remove Microsoft? Neither Schwab nor S&P Dow Jones Indices publishes reasons for individual removals. The most likely cause is that Microsoft’s dividend yield had fallen below 2% as its share price rose, leaving it outside the higher-yielding half of eligible stocks that SCHD’s index selects from.

Was Microsoft SCHD’s largest holding? Yes, at several points. It was the largest holding at the end of May 2013, November 2013 and May 2015, and second-largest at the end of May 2017.

Did Microsoft cut its dividend before it was removed? No. Microsoft raised its quarterly dividend every year it was in SCHD, from $0.23 a share in 2013 to $0.42 from late 2017.

Does SCHD hold Microsoft now? No. Microsoft has not appeared in any of SCHD’s holdings lists in Schwab’s filings since 2018.

Why did Microsoft join SCHD in 2013 and not at launch? SCHD’s index requires at least ten consecutive years of dividend payments, and Microsoft paid its first dividend in 2003. The 2013 review was the first at which it could show a ten-year record.

Which other companies did SCHD remove in 2018? The 2018 review removed 24 companies, including Coca-Cola, Johnson & Johnson, McDonald’s and Boeing. Coca-Cola returned in 2019.

Does SCHD hold Apple? No. Apple does not appear in any of SCHD’s holdings lists in Schwab’s filings from 2012 to 2026.

Does SCHD hold Nvidia or the other “Magnificent Seven” stocks? No. By October 2026, SCHD held none of Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta Platforms or Tesla, because each either lacks a ten-year dividend record or has a yield well below the level the index selects from.

Is SCHD’s single-stock cap 4.5% or 4%? It was 4.5% when Microsoft was in the fund, but it was cut to 4% in June 2020. The cap applies at each quarterly rebalance, so holdings can drift above it between rebalances.

Could Microsoft be added back to SCHD? It is possible if its yield rose into the top half of eligible companies and it scored well on the index’s other measures, but with a yield well below 1% in 2026, it was far from that level.

Your Portfolio Deserves an Educated Investor

Microsoft spent five years in SCHD, much of it as the fund’s largest holding, and was removed in 2018 without ever cutting its dividend. Its story shows how SCHD’s rules work: a company must keep a yield in the top half of eligible stocks, however successful it becomes.

Before buying another few shares of SCHD, consider investing in understanding the fund itself. How to Invest in SCHD examines its selection methodology, holdings history, dividend taxation and investment strategies, while FRC’s three progressive ETF programmes take you from how ETFs work to managing risk across everything you own. FRC’s programmes and memberships are open to everyone, whether you are investing $500 or $500,000.

If SCHD is part of your investment plans, make understanding it part of your plans too. Know why companies like Microsoft leave the fund before you decide what SCHD should do for you.