The Schwab U.S. Dividend Equity ETF has consistently ranked among the top dividend-focused ETFs for its impressive yield and growth. Since it launched in 2011, SCHD has not only delivered reliable income but also capital appreciation, so income-oriented investors have flocked to it over the years.
So, can this top ranked fund produce $84,000 in annual dividend income?
Key Points
- SCHD offers a 3.5% dividend yield and has averaged a 10% annual return since 2011, providing both reliable income and capital appreciation.
- The ETF includes top dividend-paying stocks like PepsiCo and Coca-Cola and has a low expense ratio of 0.06%.
- Consistently investing $600 monthly in SCHD over 40 years can grow to nearly $2,000,000, yielding approximately $84,000 annually.
What Makes The Dividend ETF Special?
The Schwab U.S. Dividend Equity ETF tracks the performance of the Dow Jones U.S. Dividend 100 Index, which comprises high-dividend-yielding U.S. stocks with a record of consistently paying dividends. It offers investors with a combination of dividend income and the potential for long-term capital appreciation but why has it been so popular?
For one, it pays an attractive dividend yield, making it a solid choice for income-seeking investors. The current dividend yield is ballpark 3.5%, which is significantly higher than the average yield of the S&P 500.
The holdings are a who’s who of top companies, including the likes of PepsiCo, Coca-Cola, and Verizon, which are known for their stable and growing dividends.
Plus, it’s not a very expensive ETF to hold with a low expense ratio of just 0.06%. In fact, it’s one of the most cost-effective income funds, allowing investors to keep more of their returns.
For investors who look to the past as a guide to the future the ETF performs well too, having delivered an average annual return of around 10% over the past decade.
With so much going for it, how can the ETF end paying you $84,000 a year? Here’s the math behind the calculation.
How To Get Paid $84,000 Per Year?
To get paid $84,000 a year is no mean feat but it is possible with a commitment to invest monthly in the index. If you were to figure out somehow some way to every month invest $600 in the ETF over a 40-year time horizon, the net result would be close to $2,000,000 and an annual payout of about $84,000 a year.
It’s worth noting however that the predictability of the market is low. Some years will be busts and others will be booms. The drawdowns are opportunities to grab even more shares and these in fact are the opportunities that will lead to the outsized returns over the long-term, assuming the historical norms of rising markets over every two decade period.
So the challenge will be less about the math of committing $600 monthly and more about managing the emotional turmoil during the periods when the markets get turbulent and all you want to do is Sell, Sell, Sell.
Think back to the COVID crash, or the 2008-09 market plunge or the 2000-02 bear market for instances where emotions needed to be more carefully managed. If you can brace yourself for a wild ride, the future may indeed be a generous annual payout forever more from one of the best income funds on the market.