1 ETF Could Turn $500 Monthly Into a $800,000 Portfolio That Pays $24,000 in Annual Dividend Income
Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) criteria ensure it seeks out high-quality companies rather than just high dividend yields.
Energy and Industrial companies make up around 31% of SCHD.
SCHD has averaged over 12% annual total returns since it began trading on the market.
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Most people wouldn't turn down the chance to hit the $800,000 mark, especially if they could do so relatively passively. It's not something that will happen overnight, but with consistency and patience, an ETF like the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) can help make it happen at its current pace.
As an added bonus, hitting that mark could mean $24,000 in annual dividend payouts. That's money that can be put to good use, especially during retirement. It's the gift that keeps on giving.
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Image source: Getty Images.
Why invest in SCHD?
SCHD mirrors the Dow Jones U.S. Dividend 100 Index, which picks its companies based on financial stability, strong cash flow, and a proven track record. It's why SCHD contains many "boring" businesses rather than younger, "flashier" companies. Over 19% of its holdings are energy companies, and over 12% are industrial companies.
Its top five holdings are Lockheed Martin (4.63%), Chevron (4.19%), Merck & Co. (4.11%), Home Depot (4.07%), and Bristol Myers Squibb (4.05%)
These companies may not produce triple-digit returns in a short period, but they provide reliability that you should value in dividend stocks. This is especially true when you're investing long-term, which should always be the goal with dividend stocks and ETFs. Since SCHD's criteria act as a natural vetter, you don't have to worry much about yield traps.
How SCHD can get you to $800,000
Since SCHD began trading in October 2011, it averaged 12.6% annual total returns. Past results don't guarantee future performance, but if we assume it maintains a 12% annual average, $500 monthly investments could grow to over $800,000 in just over 25 years.
With those same assumptions, here's how much $500 monthly could grow to in a different number of years:
| Years Invested | Account Value |
|---|---|
| 15 | $222,600 |
| 20 | $429,300 |
| 25 | $792,600 |
| 30 | $1.43 million |
| 35 | $2.55 million |
Table by author. Account values are rounded down to the nearest and account for SCHD's 0.06% expense ratio.
SCHD has also averaged a dividend yield of around 2.8% since inception and 3.2% in the past decade. If we meet in the middle and assume its yield remains 3%, an $800,000 position in SCHD would pay out $24,000 annually.
Again, these are assumptions, and there's no way to predict SCHD's performance or long-term yield. But more than anything, it shows the power of compound earnings in investing. With time on your side, you can be rewarded nicely for consistency.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Home Depot, and Merck. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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