Could Investing $2,000 in the Schwab U.S. Dividend Equity ETF Make You a Millionaire?

The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) is one of the largest and most popular exchange-traded funds (ETFs) focused on dividend stocks. The fund currently has over $75 billion in assets under management, making it the second-largest dividend-focused ETF.

The fund has an excellent history of delivering strong returns for investors. Here's a look at whether investing $2,000 into this top ETF today could make you a future millionaire.

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An enriching ETF

The Schwab U.S. Dividend Equity ETF has been enriching investors since its inception in late 2011. It has delivered an average annual total return of 12.3% since that time. At that rate, it would have grown a $10,000 investment into nearly $30,500. While that's a great return, it's a long way from $1 million.

Amassing a $1 million fortune takes time. For example, if you invested $2,000 into a fund that generated a 12.3% average annual return, it would grow into over $1 million in about 54 years. So, unless you are very young, investing only $2,000 into this ETF wouldn't be enough to make you a millionaire before retirement.

However, you could speed things up a bit by making additional contributions. For example, investing another $1,000 into the fund each year would trim your time to becoming a millionaire to 42 years. Bump that rate up to $2,000 a year, and you could become a millionaire in 36 years.

That all assumes the fund continues to deliver returns matching its historical rate. While that's no guarantee, the fund's investment strategy puts it in an excellent position to deliver strong returns going forward.

A smart investment strategy

The Schwab U.S. Dividend Equity ETF has a very straightforward investment strategy. It aims to passively track the Dow Jones U.S. Dividend 100 Index, which measures the performance of high-yielding dividend stocks with a consistent record of dividend payments. It screens companies based on several dividend quality characteristics, including yield, five-year dividend growth rate, and strong financial metrics. In essence, it aims to track the 100 best higher-yielding dividend growth stocks.

This focus on dividend growth is worth noting. Ned Davis Research and Hartford Funds have been tracking dividend stocks by policy over the years. They've found that dividend growers deliver superior total returns over the long term:

Data source: Ned Davis Research and Hartford Funds.

By focusing on the highest quality dividend growth stocks, the Schwab U.S. Dividend Equity ETF should deliver returns at or above the average dividend grower over the long term. That has been the case since its inception (12.3%) and over the last 10 years (11.4%).

The fund is in a strong position to continue delivering robust returns. For example, at its most recent annual reconstitution early last year, the fund's 100 holdings had an average dividend yield of 3.8% and had grown their payouts at an average annual rate of 8.4% over the last five years. Assuming these stocks maintain their current valuation multiples, they would deliver average annual total returns of more than 12% with dividend reinvestment.

There's no guarantee that the dividend stocks it holds will deliver that level of return in the future. However, it's not an overly optimistic view either, given the fund's returns history and the yield and growth records of its current holdings.

A potentially enriching ETF

Investing $2,000 into the Schwab U.S. Dividend Equity ETF and calling it a day likely won't make you a millionaire in your lifetime. However, investing $2,000 and making additional annual contributions can meaningfully increase your chances of reaching that milestone in the coming decades. The fund has a strong track record of delivering robust returns for investors, which should continue given its investment strategy.

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.