Investing a little bit of money each month can really add up over the long term, especially if you invest it wisely. One of the smartest categories of long-term investments has been dividend stocks, particularly those that steadily increase their payments. Over the last 50 years, dividend growers have delivered an average annual return of 10.2%, according to data from Hartford Funds and Ned Davis Research. That's more than twice the 4.3% average return of non-dividend payers.
The easiest way to tap into the power of dividend stocks is by investing in an exchange-traded fund (ETF) that's focused on them. The Schwab U.S. Dividend Equity ETF (SCHD -0.56%) is one of the top dividend ETFs. By investing $250 a month into this ETF, you could grow your position in it to $923,000 in 30 years. Further, this investment could produce almost $37,000 in annual dividend income at that value. That could really help provide you with a more comfortable retirement.
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What is the Schwab U.S. Dividend Equity ETF?
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 index, which aims to measure the performance of higher-yielding dividend stocks with track records of consistently paying dividends that grow over time. The index screens companies based on several dividend quality characteristics, including yield and five-year dividend growth rate.
In a nutshell, its components are 100 of the best dividend stocks in the country. At its annual reconstitution at the end of March, the fund's holdings had an average yield of 3.8% and had grown their payouts by an average of 8.4% over the past five years. That yield is nearly triple the S&P 500's 1.3% yield today, and the growth rate is also above the S&P 500's average of 5% over the past five years.
The fund's top holdings are a who's who of leading dividend stocks. For example, its second-largest holding is Coca-Cola (KO -1.09%). The beverage giant has increased its payouts for 63 years in a row, including by 5.2% earlier this year. That streak puts Coca-Cola in the elite category of Dividend Kings -- companies that have boosted their payouts annually for 50 straight years or more. It distributed $8.4 billion in dividends last year and has paid out $93.1 billion since 2010. With its robust and growing cash flows, Coca-Cola should have no trouble continuing to increase its dividend, which has a yield of 2.8% at the current share price.
Another top holding is oil giant Chevron (CVX 0.65%). The dividend stalwart has raised its payment for 38 consecutive years -- a time frame that included multiple down periods in the oil market. Chevron has increased its payment at a peer-leading rate over the past five years, including by 5% in 2025. The oil company expects to add more than $9 billion to its annual free cash flow by next year, giving it even more fuel to grow its high-yielding dividend -- 4.7% at the current share price.
Growing income and value
The ETF's focus on the highest-quality dividend stocks has paid off for its investors over the years. Since its inception in late 2011, the fund has generated an average annualized total return of 12.2%.
Returns like those combined with a steady approach of contributing more money to your investment regularly can really add up over the years. For example, if a person invested $250 a month into a fund that achieved that rate of return (and reinvested their dividends), in 30 years, their investment would grow to a value of over $923,000.
One big driver of the fund's strong long-term returns has been the growing dividend payouts of its various holdings. As the chart below shows, the ETF has distributed a generally rising stream of dividends to its holders.
SCHD Dividend data by YCharts.
At the fund's current price, it has a dividend yield of around 4% based on its payment over the past 12 months. If it continues to invest in stocks with an average yield around that rate, a $923,000 investment would produce nearly $37,000 in annual dividend income. That would be a nice chunk of change to help fund your retirement.
There are no guarantees the fund will continue to deliver returns at its historical level or produce income at its current annualized rate in the coming years. However, the Schwab U.S. Dividend Equity ETF has a strong track record of success because it focuses on investing in companies that have paid sustainable and steadily rising dividends. Those types of companies have historically produced strong total returns over the long term. Taking advantage of its strategy could help you grow modest monthly investments into a much larger future nest egg.
