Want to Build Serious Passive Income Starting in Your 40s? This Dividend Growth ETF Has the Best Track Record.
Key PointsSCHD has delivered the highest total returns among dividend ETFs since inception.
For those in their 40s looking to generate serious passive income, a dividend growth ETF can be a powerful tool. One standout option is the Schwab U.S. Dividend Equity ETF (SCHD -0.37%). This ETF offers a compelling combination of yield and dividend growth, making it a top choice among its peers.
SCHD tracks the Dow Jones U.S. Dividend 100 Index, which comprises 100 high-quality, high-yielding dividend stocks. The fund's selection process evaluates companies based on several key dividend quality metrics, such as dividend yield, five-year dividend growth rate, and financial strength. This unique focus sets SCHD apart from other dividend ETFs that may prioritize either yield or growth alone.
Over the past year, SCHD has delivered a 3.2% distribution yield, which is notably higher than the S&P 500's 1.1% dividend yield. Furthermore, the fund's current holdings have consistently grown their dividends by more than 9% annually over the last five years. This strong dividend growth track record has contributed to SCHD's superior performance compared to other top dividend ETFs over the past decade, even though some of those funds have offered higher total returns.
One of the key advantages of SCHD is its high starting yield, which enables investors to generate more passive income right from the beginning. For instance, a $1,000 investment in SCHD would yield approximately $32.40 in annual dividend income. This compares favorably to a $1,000 investment in another popular dividend ETF, DGRO, which would generate only about $20 in dividend income in the first year.
Moreover, as the ETF's holdings increase their payouts over time, the income stream generated by SCHD continues to grow. To illustrate this potential, a model was created using conservative assumptions. Assuming a $275 monthly investment in SCHD for a decade, with dividend reinvestment, and that both the ETF's dividend and share price grow at an annual rate of 9%, the model projects over $2,000 in annual dividend income in just 10 years.
While there's no guarantee SCHD will maintain this growth rate, it provides a useful benchmark for understanding its income potential.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
This story
This is one outlet's version. Read the fullest account.
