Want $1,000 a Month in Passive Income? This Brilliant Dividend ETF Could Get You There in 20 Years.

Generating $1,000 every month in passive income from your investments sounds like something that requires an enormous amount of money upfront.

That would certainly get the job done, but it's not required.

An investor starting from nothing could reasonably build that passive income stream with as little as $500 per month consistently invested over two decades.

The key is choosing the right dividend exchange-traded fund (ETF) that can get you there. In general, dividend growth ETFs yield too little to throw off that kind of income. If you choose something based solely on yield, you could end up with a relatively risky portfolio. You want something that strikes the right balance between quality, growth, and yield.

In my opinion, the one fund that stands out is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It not only produces the yield necessary to achieve this goal, it does it by focusing on high-quality stocks that have also grown their dividends over time.

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SCHD is built for sustainable dividend income

Even though its 3.3% yield is on the higher end of the dividend ETF universe, the Schwab U.S. Dividend Equity ETF ensures that yield is durable through its stock-selection process.

It starts by only considering companies that have paid dividends for at least 10 consecutive years. Within that universe, stocks are ranked using a combination of dividend yield, five-year dividend growth rate, return on equity (ROE), and free cash flow relative to debt. It ends up being one of the few dividend ETFs that considers all three major factors: dividend quality, dividend growth, and yield.

Over its history, that formula has worked. Since its 2011 inception, the Schwab U.S. Dividend Equity ETF has returned more than 13% annually, for a total return of roughly 540%.

Here's how a $500 monthly investment turns into $1,000 in monthly income

If you invest $500 every month for 20 years, assuming that you earn 10% annually and reinvest the dividends, your portfolio would grow to around $380,000 to $120,000 from your own investments and $260,000 from compounding growth and income.

Also, assuming the current 3.3% annual yield remains the same 20 years from now, the investment in the Schwab U.S. Dividend Equity ETF would produce just over $12,500 in annual dividend income, or a bit more than $1,000 per month.

The yield and return assumptions, of course, may be different, but the point of this exercise is still the same. Consistently investing on a regular basis in a portfolio of high-quality stocks can produce substantial returns over time.

The Schwab U.S. Dividend Equity ETF is the fund that can do the job.

David Dierking 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.