1 Top ETF I Plan to Load Up on This Month
Key Points
The Schwab U.S. Dividend Equity ETF holds 100 high-quality, high-yielding dividend stocks.
Its holdings have excellent records of increasing their dividends.
This ETF can help me achieve my passive income goal.
- 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›
My top financial goal is to grow my passive income to the point where it can cover my basic living expenses. I've found that investing in exchange-traded funds (ETFs) can help me make progress toward that goal.
One of my favorite ETFs for generating passive income is the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). I plan to continue loading up on shares this February.
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The Schwab U.S. Dividend Equity ETF has a very simple strategy. It tracks the Dow Jones U.S. Dividend 100 Index, which aims to measure the performance of 100 high-quality, high-yielding dividend stocks. The fund screens companies based on several dividend quality characteristics, including yield and five-year dividend growth rate.
Over the last 12 months, the ETF's distribution yield has averaged 3.8%. That's more than three times higher than the S&P 500's dividend yield (1.1%). To put that into perspective, every $100 I invest in the fund would generate about $3.80 in annual dividend income, compared to only around $1.10 from a similar investment in an S&P 500 index fund.
The Schwab U.S. Dividend Equity ETF's current holdings have grown their dividends by an average of more than 8% per year over the past five years. That's much faster than the S&P 500's dividend growth rate of 5%.
This ETF can provide me with an attractive, steadily growing stream of passive dividend income. As a result, it should enable me to achieve my passive income target even sooner. On top of that, the earnings and dividend growth of the underlying companies steadily increase the ETF's share price. This income and growth combination has really added up over the years as the Schwab U.S. Dividend Equity ETF has delivered a 12.3% average annualized total return since its inception in 2011.
This compelling blend of income and growth is why I plan to continue loading up on this ETF in February.
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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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