Here's How Much of the Schwab U.S. Dividend Equity ETF You'd Need to Cover Your Grocery Bill Every Month
Key Points
The Schwab U.S. Dividend Equity ETF offers a high-yielding income stream.
It has steadily distributed more dividend income each year.
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The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the largest, most popular dividend-focused exchange-traded funds (ETFs). A growing number of investors are using the fund to generate passive income.
Here's a look at how much of this top ETF you'd need to buy to cover your grocery bill each month.
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Generating enough passive income to feed a family
Data from the U.S. Department of Agriculture shows that the average family of four spends $1,013.20 per month on groceries, or over $12,000 per year. Your monthly grocery bill might be higher or lower depending on the size of your family, your location, and the types of foods you buy. However, we'll use that roughly $1,000-per-month average as our baseline.
The Schwab U.S. Dividend Equity ETF currently pays quarterly dividends, backed by income from its roughly 100 holdings. It has paid $1.05 per share in dividends over the last 12 months, yielding 3.3% on an annualized basis. At that income level, you'd need to invest $363,550 into the ETF to generate about $12,000 in annual passive dividend income. While that's a lot of money, it's much less than the nearly $1.1 million you'd need to invest in an S&P 500 index fund to generate the same income level due to its lower 1.1% yield.
One of the great things about SCHD is that it has historically paid more in dividends each year. The ETF has grown its payout at an 11.2% compound annual rate since 2017. That can enable you to collect a growing stream of dividend income that compounds over the years. For example, a $5,000 investment in this ETF could generate over $800 in annual dividend income in about 20 years if the fund grows its payout at a 9% annual rate and you reinvest the dividends. You can steadily grow your way toward offsetting your grocery bill by investing more money into the ETF each month and reinvesting your quarterly dividends. It's an ideal ETF to buy to build wealth and long-term passive dividend income.
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Matt DiLallo has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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