SCHD: A Dividend Investor’s Powerhouse

The Schwab U.S. Dividend Equity ETF (SCHD) isn’t just another ETF; it’s a dual-engine vehicle for wealth building. I’ve been consistently adding to my position in SCHD, and for good reason. It’s become a cornerstone of my dividend-focused investment strategy. Here’s why I can’t seem to stop investing in this top dividend ETF.

Image source: Placeholder Image

The Allure of Dividend Income

I’m a firm believer in the power of passive income. Consistent dividend payments provide capital for reinvestment and accelerate the journey towards financial freedom. SCHD perfectly aligns with this philosophy.

The fund meticulously tracks the Dow Jones U.S. Dividend 100 Index, focusing on 100 high-yielding dividend stocks selected based on stringent quality criteria. These include not only dividend yield but also a five-year track record of dividend growth. This focus on quality is crucial for long-term sustainability.

Yield and Growth: A Winning Combination

Currently, SCHD boasts a dividend yield of approximately 3.5%, based on its trailing twelve-month payments. This is significantly higher than the S&P 500’s average yield of around 1.1%. This translates to more passive income generated per dollar invested.

But the appeal doesn’t stop at the current yield. SCHD’s underlying holdings have consistently increased their dividend payouts. Over the past five years, these companies have collectively raised dividends by over 8% annually. This consistent growth is visualized below:

SCHD Dividend data by YCharts (Placeholder Image)

This combination of a high current yield and steadily increasing distributions positions SCHD to deliver even more passive income in the future.

Beyond Dividends: Total Return Performance

Dividend income is only half the story. SCHD has also demonstrated a strong track record of delivering impressive total returns – the sum of dividend income and price appreciation. Since its inception in October 2011, the fund has achieved an average annual return of 12.9%.

Looking at more recent performance, SCHD has consistently delivered annualized returns exceeding 10% over the past five and ten-year periods. And it’s off to a strong start this year.

The Power of Dividend Growth

This strong performance is directly linked to SCHD’s strategy of investing in companies that prioritize dividend growth. Historical data from Ned Davis Research and Hartford Funds reveals that, over the past 50 years, companies that consistently grow their dividends have averaged a 10.2% annual return. This significantly outperforms companies with stagnant dividends (6.8%), those that cut or eliminate dividends (-0.9%), and those that don’t pay dividends at all (4.3%).

Sustainable earnings growth is the engine driving these dividend increases. And, historically, earnings growth is a key driver of long-term stock price appreciation. By focusing on dividend growth, SCHD is positioned to benefit from the underlying growth of its holdings.

A Simple Strategy, Powerful Results

The Schwab U.S. Dividend Equity ETF’s straightforward approach – investing in 100 of the top high-yielding dividend growth stocks – perfectly aligns with my investment goals. It provides a robust, steadily increasing stream of dividend income, coupled with a proven track record of double-digit total returns. These dual benefits accelerate the path to financial freedom, which is why I continue to build my position in this exceptional ETF.

Disclaimer: I have positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned.