1 Top ETF I Wouldn't Hesitate to Invest $1,000 Into Right Now

Key Points

• The Schwab U.S. Dividend Equity ETF holds 100 of the top dividend stocks.

• Its holdings pay high-yielding and steadily rising dividends.

• The fund is a great way to complement a portfolio of dividend-paying stocks.

• 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›

I primarily invest in individual stocks. I like to actively manage my own portfolio to have direct control over my financial future.

However, I have been adding more passive investments such as exchange-traded funds (ETFs) to my portfolio to boost my exposure to specific asset classes while benefiting from the added diversification. One of my favorite ETFs is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). Here's why I wouldn't hesitate to invest another $1,000 into the fund right now.

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100 top dividend stocks in a single fund

I enjoy investing in dividend-paying stocks for the passive income they offer. Additionally, dividend stocks have historically delivered much higher total returns compared to non-payers.

While I already own many excellent dividend-paying stocks, adding the Schwab U.S. Dividend Equity ETF complements my holdings. It adds exposure to leading dividend stocks I do not own, and boosts my allocation to others.

What I like about this fund is that it holds 100 top higher-yielding dividend stocks selected through a systematic process to identify companies based on dividend quality. The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which screens stocks by evaluating four key metrics: cash flow to debt, return on equity, dividend yield, and five-year dividend growth rate. These criteria ensure that only financially strong companies with a solid record of dividend payments are included in the index.

These characteristics increase the probability that these companies can pay sustainable and steadily growing dividends. That blend of income and growth tends to yield the highest total returns over the long term.

The Schwab U.S. Dividend Equity ETF currently has a dividend yield of around 3.7% based on its distributions over the past 12 months. That's triple the S&P 500's dividend yield, which is currently below 1.2%. Meanwhile, the fund's holdings have collectively increased their dividend payments at a more than 8% compound annual rate over the past five years. That's a nice balance between income and growth.

Top-notch dividend stocks

The Schwab U.S. Dividend Equity ETF is like a who's who of top dividend stocks. Its top holding is currently AbbVie (NYSE: ABBV) at 4.2% of its assets. The drug maker has a terrific record of paying dividends. AbbVie has increased its dividend every year since its 2013 spinoff from Abbott Laboratories, following in the legacy of Abbott, which has over half a century of dividend increases. AbbVie has grown its payout by an impressive 310% since its separation and currently has a 3% dividend yield.

Coca-Cola (NYSE: KO) is another top holding, with a 3.9% allocation in the fund. The global beverage giant extended its dividend growth streak to an impressive 63 straight years earlier this year. That kept it in the elite group of Dividend Kings, companies with 50 or more years of dividend increases. Coca-Cola paid $8.4 billion in dividends last year and is approaching $100 billion in dividend payments since the start of 2010. The company has been growing its dividend at a low-to-mid single-digit annual rate, which should continue in the future. Coca-Cola's payout currently yields over 3%.

Most of the fund's holdings have long and strong records of increasing their high-yielding dividends, positioning investors for both reliable income today and growing payouts over time.

An excellent ETF to buy for dividend income

The Schwab U.S. Dividend Equity ETF is a great fund to buy to supplement your dividend income. Investing $1,000 in the fund would generate about $37 in annual dividend income, which should steadily rise each year. The fund's focus on dividend quality and growth is why I wouldn't hesitate to add to my position right now if I had idle cash to invest.

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Matt DiLallo has positions in Coca-Cola and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends AbbVie and Abbott Laboratories. The Motley Fool has a disclosure policy.