The Best Dividend ETF for Building Passive Income Streams That Last

John Smith

Stocks that generate dividends provide more than just a steady stream of income. Investing in companies with a track record of increasing payments and share price gain is a great way to build wealth.

It might be difficult, though, to track out these treasures independently. Putting money into a dividend-focused ETF is a simpler option. One excellent option is the Schwab U.S. Dividend Equity ETF (SCHD), which is known for its careful selection of stocks.

SCHD: An ETF Engineered to Pick Winners

In order to ensure that its investors are getting dividends from companies with strong financials and increasing profitability, SCHD follows an index that includes roughly 100 dividend firms.

Since its start in 2011, SCHD has delivered total annualized returns of 12.1%, a result of this strategy’s enormous results. Surprisingly, an investment of $10,000 back then would currently be worth almost $42,000.

This achievement can be attributed to SCHD’s dividend-centric strategy, which has been fine-tuned to focus on “the best of the best” income earners.

Seeking Both High Yields and Dividend Growth

When selecting its component equities, the underlying Dow Jones index used by SCHD follows strict standards. Things needed are:

  • A dividend yield that is significantly higher than the normal market yield. While the S&P 500 yields merely 1.5% at the moment, SCHD’s yield stands at 3.9%.
  • A steady history of increasing dividends year after year, showing a strong dedication to keeping payouts stable.
  • The resources to maintain payouts during good times and bad. The potential to generate cash flow is high and balance sheets are solid for stocks.

The end product is a portfolio of companies that promises high current income and future growth.

A Diversified Mix of Quality Dividend Payers

  1. Verizon (4.4% weight) – The telecom leader has raised dividends for 17 straight years. Its 6.9% yield is near all-time highs.
  2. Amgen (4.4%) – This biotech innovator has increased payouts every year since initiating dividends in 2011. Yields 3.2% currently.
  3. Broadcom (4.2%) – The semiconductor powerhouse has grown dividends annually since 2011 as well. Yields around 2% now.
  4. Coca-Cola (4%) – With 61 consecutive years of dividend growth, Coke is a legendary dividend aristocrat. Its yield stands at 3.1%.
  5. Home Depot (4%) – The popular home improvement retailer has boosted dividends for over a decade, including a 10% hike in 2023. Now yields 2.6%.

Not Just Rich Current Income, But The Potential for Strong Total Returns

In addition to large cash payouts, SCHD investors have reaped benefits from the fund’s emphasis on high-quality dividend payers. Historical total annualized returns have surpassed 12%, proving that high-quality dividends may lead to thrilling growth.

This outperformance may be sustainable, as SCHD is currently trading at a fair valuation. As a whole, its underlying stocks have a P/E of 14.4x, which is far lower than the S&P 500’s exorbitant 20.4x. On top of that, as share prices rise, SCHD’s 3.9% dividend yield ensures a consistent flow of income.

Passive Income That Lasts

Amidst a sea of glitzy investments promising the moon, SCHD stands out with its unwavering commitment to dividend quality, which propels solid overall returns.

The underlying companies of this exchange-traded fund (ETF) have the financial wherewithal to continue paying out substantial dividends, and they have also shown a steady dedication to doing so throughout the years.

An income-oriented portfolio should include SCHD if the investor is looking for a diverse basket of stocks that can provide a large current yield and the potential for strong total returns.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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