Schwab's Dividend ETF Has Nearly Quadrupled Its Payout Since 2012

Someone who bought the Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD) at the end of 2011 paid around $8.73 a share (adjusted for the fund's 3-for-1 stock split in October 2024). In 2025, the fund paid around $1.05 a share in distributions. So the investor now earns around 12% a year in cash on the original investment, without selling a single share.

A buyer today sees a very different number. With shares at around $33 as of this writing, the ETF's latest four quarterly payments work out to a yield of about 3.2%.

The gap comes from how much the payout has climbed. In 2012, its first full year, SCHD paid $0.27 a share. Its annual total has risen every year since, and by 2025 it had nearly quadrupled.

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A pass-through payout

Unlike a company, SCHD doesn't set its own dividend. It gets the dividends paid by its 100 or so holdings (mainly large value stocks, per the fund's Morningstar category) and passes that income on every quarter, minus an expense ratio of just 0.06%.

So the fund's payout rises when these dividend stocks pay more.

Much of that depends on the holdings' own profits. A company can usually afford a bigger dividend when its net income rises, and the fund's 13 straight years of larger payouts suggest its holdings have kept it up.

The other lever is the index SCHD tracks, the Dow Jones U.S. Dividend 100 Index, which rebuilds its roster every March. It prefers companies with a consistent record of paying dividends and screens them by four measures: free cash flow to debt, return on equity, dividend yield, and dividend growth.

This year's rebuild was a big one. In March, the index cut 22 stocks and added 25, turning over around 31% of the fund's portfolio, according to Schwab. And Schwab's measure of the holdings' dividend growth climbed from about 8.6% before the change to around 9.4% afterward. So I think every rebuild helps trade slower-growing payers for faster ones, which can keep a fund's payout rising for years to come.

A 12% yield on cost

Showing what 13 years of raises can do, the end-of-2011 buyer's yield on cost (the yearly payout divided by the price originally paid) is now around 12%, up from about 3.1% in 2012.

The raises weren't steady. The yearly total jumped around 20% in 2019, for example, but 2023 saw a rise of only about 4%. Still, over the 13 years through 2025, the payout grew about 11% a year on average.

What didn't move much is the starting yield. That 3.1% from 2012 is around the same as the 3.2% a buyer gets today. That's because the share price nearly quadrupled over the same span, climbing in step with the payout.

Put another way, investors have kept paying around the same price for every dollar of the fund's income, so its valuation, measured by its yield, has hardly budged. The early buyer's 12% yield on cost came from 13 years of raises.

Can today's buyer expect the same?

I think it's unlikely at the recent rate. After a 14% rise in 2022, the yearly payout climbed around 4% in 2023, then about 12% in 2024 before slowing to about 5% in 2025 -- an average of about 7% a year for those three years. And 2026 has been even slower. The first three payments this year, including the one made on Sept. 28, total around $0.78 per share, just about 1% above the same three payments in 2025.

That puts this year's raise in doubt. For 2026's total to beat 2025's, the December payment would need to come in above about $0.27 per share, compared to about $0.28 last December.

At the payout's long-term rate of around 11% a year, a buyer at today's 3.2% yield could hit about 12% on cost in 13 years, matching the early buyer. At 2025's rate of around 5%, it'd be closer to 6%.

True, the March rebuild boosted Schwab's measure of the holdings' dividend growth, which might help from here. But the payments themselves haven't shown that yet.

I think SCHD is still worth considering for a growing income stream, because a buyer today starts with around the same yield the early buyer did. But given the last few years, I'd expect the raises from here to be smaller than the ones that brought early buyers to 12%.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.