Want Decades of Passive Income? Buy This Index Fund and Hold It Forever.
Key Points
The Schwab U.S. Dividend Equity ETF sports a hefty dividend yield of 3.5%.
That's far greater than the S&P 500 index's more modest yield of 1.1%.
Its holdings are more diversified than the tech-heavy S&P 500, too.
- 10 stocks we like better than Schwab U.S. Dividend Equity ETF ›
Want to know what my favorite dividend-focused exchange-traded fund (ETF) is? Well, it's the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). It's worth considering for your portfolio because dividends can be powerful wealth builders -- especially when you plow them into more shares of stock.
Here's a look at the power of dividends and why you might consider this ETF. (Remember, an ETF is a fund that trades like a stock.)
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Behold the power of dividends
To see why I'm a fan of dividend-paying stocks, check out the table:
|
Dividend-Paying Status |
Average Annual Total Return, 1973-2024 |
|---|---|
|
Dividend growers and initiators |
10.24% |
|
Dividend payers |
9.20% |
|
No change in dividend policy |
6.75% |
|
Dividend non-payers |
4.31% |
|
Dividend shrinkers and eliminators |
(0.89%) |
|
Equal-weighted S&P 500 index |
7.65% |
Data source: Ned Davis Research and Hartford Funds.
See? Dividend payers are no slouches. They can deliver a lot of passive income.
Meet the Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 index, which holds about 100 carefully selected stocks with track records of paying dividends for at least 10 years -- and which also seem to be tied to high-quality companies. Here's how the Schwab ETF has performed in recent years:
|
ETF |
Recent Yield |
Five-Year Avg. Annual Return |
10-Year Avg. Annual Return |
15-Year Avg. Annual Return |
|---|---|---|---|---|
|
Schwab U.S. Dividend Equity ETF |
3.5% |
10.91% |
13.55% |
12.30%* |
|
Vanguard S&P 500 ETF |
1.1% |
13.82% |
16.09% |
13.77% |
Source: Morningstar.com, as of Feb. 9, 2026.
*as of inception date, Oct. 20, 2011
I included the performance of a low-fee S&P 500 index fund for comparison, and you can see that the Schwab ETF isn't far off from its performance while delivering a lot more income. Better still, healthy and growing dividend payers tend to increase their payouts over time. Here are the ETF's recent top holdings, which recently made up about 42% of the fund's value:
|
Stock |
Weight in ETF |
|---|---|
|
Lockheed Martin |
4.60% |
|
Bristol-Myers Squibb |
4.29% |
|
Texas Instruments |
4.27% |
|
Chevron |
4.21% |
|
Merck |
4.20% |
|
ConocoPhillips |
4.13% |
|
PepsiCo |
4.06% |
|
Verizon Communications |
4.01% |
|
Altria |
3.95% |
|
Coca-Cola |
3.93% |
Data source: Morningstar.com, as of Feb. 7, 2026.
Why I love the Schwab U.S. Dividend Equity ETF
Here are some more reasons you might want to invest in the Schwab U.S. Dividend Equity ETF:
- It sports a significant dividend yield, recently at 3.8%. That's greater than many good dividend-focused ETFs, and the fund has a strong growth record, too.
- The ETF's expense ratio (annual fee) is just 0.06%, which means that you'll have to fork over just $0.60 annually for each $1,000 you have invested in the fund.
- It's not as tech-heavy as many funds, with just 10% of its assets in tech stocks recently. Fully 20% was in energy companies and 19% in consumer defensive companies. So should, say, an artificial intelligence (AI) bubble burst, it can rely on its many other holdings to protect it.
Any long-term income seeker should consider this solid ETF filled with some of the best blue chip stocks.
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Selena Maranjian has positions in Altria Group, Bristol Myers Squibb, Schwab U.S. Dividend Equity ETF, and Verizon Communications. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Merck, Texas Instruments, and Vanguard S&P 500 ETF. The Motley Fool recommends ConocoPhillips, Lockheed Martin, and Verizon Communications. The Motley Fool has a disclosure policy.
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