The goal of most investors is to reach the point where their portfolio can fully support their lifestyle. A long-term passive income strategy, featuring stocks and exchange-traded funds (ETFs) with lengthy histories of dividend growth, can help achieve this. The dividend stream itself can provide the income, while the dividend growth component can help keep up with inflation. It's a fairly simple strategy, but one that can carry a portfolio for decades.
A lot of people will target individual stocks for dividend growth, but ETFs can work just as well. Some of them, such as the Vanguard Dividend Appreciation ETF (VIG 1.31%) and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL 1.14%), allow you to own an entire basket of dividend growers under a single ticker.
One of the best to do it, in my opinion, is the Schwab U.S. Dividend Equity ETF (SCHD 0.58%). It combines dividend growth, dividend quality, and high yield into a single fund. Better yet, it's grown its annual dividend every year since its 2011 inception. Its track record has demonstrated that this ETF is fully capable of creating a decades-long passive income stream for investors.
Inage source: Getty Images.
What the Schwab U.S. Dividend Equity ETF does
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which starts with a universe of companies that have paid dividends for at least 10 straight years, and then looks at several fundamental metrics to screen for stocks with the best combination of quality, dividend growth, and high yield.
The end result is a portfolio with a current yield of 3.8% (as of Dec. 8), but not one that stretches the boundaries of risk to achieve it. The selection methodology focuses on the characteristics that help ensure dividend durability and sustainability, beyond just the high likelihood of future dividend growth. Its emphasis on balance sheet quality helps to avoid the yield traps that many other high-dividend yield ETFs fall into.
Where SCHD is finding opportunity right now
As you might imagine, the Schwab U.S. Dividend Equity ETF is relatively light on the artificial intelligence (AI) and tech stocks that have driven the market's rally over the past few years. Instead, it ends up including stocks that are more durable, defensive, and mature.
The current top five sector holdings are energy (19.3%), consumer staples (18.5%), healthcare (16.1%), industrials (12.3%), and financials (9.4%). Tech only comes in at No. 7 with 8.3%. The top five individual holdings are Cisco Systems, Merck, Amgen, AbbVie, and Bristol Myers Squibb.
This obviously isn't the sexiest list of stocks in the world, and certainly not the one you'd want to hold if you're in the middle of a tech boom. But that's not the point.
Schwab's ETF isn't necessarily targeting those kinds of names. It's targeting the ones with strong cash flows, healthy returns on equity, and a history of rewarding shareholders. More importantly, they have the ability to keep paying dividends even when conditions start to get rough.
If your goal is to hold an ETF for several decades and be able to count on it continuing to deliver predictable and steady income, this is the kind of strategy that has delivered.
NYSEMKT: SCHD
Key Data Points
SCHD has already delivered 14 years of dividend growth
The best predictor for whether an ETF is cut out to deliver decades of passive income is its ability to already do it. The Schwab U.S. Dividend Equity launched in 2011. Every calendar year since then, it's successfully increased its annual dividend paid to shareholders.
| Year | Annual Per-Share Dividend |
|---|---|
| 2025 | $1.0476 |
| 2024 | $0.9944 |
| 2023 | $0.8860 |
| 2022 | $0.8538 |
| 2021 | $0.7497 |
| 2020 | $0.6761 |
| 2019 | $0.5747 |
| 2018 | $0.4798 |
| 2017 | $0.4486 |
| 2016 | $0.4193 |
| 2015 | $0.3822 |
| 2014 | $0.3490 |
| 2013 | $0.3013 |
| 2012 | $0.2700 |
| 2011 | $0.0406 |
Data source: Schwab (amounts are split-adjusted).
The 2025 annual dividend was able to break the $1-per-share mark for the first time, thanks to a just-announced $0.2782 per-share dividend in Q4, the largest quarterly payout on record.
Given that ETF portfolios can change over time (SCHD's annual reconstitution takes place in March), there's no guarantee this streak will continue. But considering that this fund just delivered its 14th consecutive annual dividend increase, it stands to reason that there are probably years of dividend growth ahead for this elite performer.
Why SCHD can be a "hold forever" dividend giant
If your investment goal is long-term income generation, your target should be stocks and ETFs that can deliver consistent dividend growth and do it for long periods of time.
The Schwab U.S. Dividend Equity ETF checks both boxes. Its portfolio of durable, mature companies might not be set up to outperform the market when tech and growth stocks are flying. But if you're looking for one ETF that offers a quality dividend stream that can sustain and grow for years to come, SCHD might be the one.
