The Schwab U.S. Dividend Equity ETF (SCHD +0.74%) is one of the largest dividend-focused exchange-traded funds (ETFs). It has become a magnet for income-focused investors, in part due to its attractive dividend yield.
Here's a look at how many shares of this top ETF you'd need to buy to collect $500 of dividend income each year.
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A top dividend ETF
The Schwab U.S. Dividend Equity ETF tracks an index that screens for the best dividend stocks based on several dividend quality characteristics, including dividend yield and the five-year dividend growth rate. The fund holds 100 companies that pay high-yielding and steadily rising dividends.
The ETF collects dividend payments from its holdings and distributes the income to investors on a quarterly basis. It has paid out a cumulative $1.03 per share in dividends over the past 12 months, giving it a 3.8% annualized distribution yield at the current share price.
NYSEMKT: SCHD
Key Data Points
At that rate, you would need to own roughly 485 shares to generate $500 of annual dividend income. Those shares would cost you over $13,225 at the recent share price of around $27.25. That's a much lower investment level compared to what you'd need to invest in a fund with a lower yield. For example, you'd have to invest over $43,110 in an S&P 500 index fund to generate $500 of dividend income, given its currently low yield of less than 1.2%.
The Schwab U.S. Dividend Income ETF's income stream should steadily rise as the companies held by the fund increase their payments. Its current holdings have grown their dividends at a more than 8% annual rate over the past five years.
The fund's combination of a high current yield and solid dividend growth profile makes it an excellent one to buy and hold for income.
