SCHD’s Dividend Surge: Your Path to Perpetual Wealth Unlocked

Legions of yield-seeking investors count on exchange-traded funds (ETFs) to provide consistent passive income streams. Among the most reliable dividend payers is a diversified fund known as the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction).

One of the most attractive features of the Schwab U.S. Dividend Equity ETF is its dividend raises, which have the potential to unlock endless income. Before you consider taking a share position in the SCHD, though, you’ll definitely want to know what’s in the fund and how its dividend payments have gone through ups and downs.

Wide Diversification at a Nice Price

Dividend payouts are great, but investors should take a safety-first approach. This means you don’t want to put all of your eggs in one basket; in other words, stock diversification is crucially important.

As it turns out, the Schwab U.S. Dividend Equity ETF provides fairly wide diversification as it tracks the Dow Jones U.S. Dividend 100 Index and includes 103 stocks. You’ll find plenty of established blue-chip names in the SCHD ETF’s holdings list, such as Home Depot (NYSE:HD), Chevron (NYSE:CVX),Coca-Cola (NYSE:KO) and Lockheed Martin (NYSE:LMT).

Since it is diversified across a range of large-cap stocks, investors shouldn’t hope for a quick “moonshot” with the Schwab U.S. Dividend Equity ETF. Instead, look for steady gains; SCHD’s share price rose 6% to 7% over the past six months, which is respectable.

Another great feature of the Schwab U.S. Dividend Equity ETF is its low expenses. Some investors don’t spend much time thinking about a fund’s fees, but high expenses can significantly lower your returns after a while.

In the universe of ETFs, you might sometimes find high expense ratios. These are the annualized operating expenses that are automatically deducted from the share price. With some funds, expense ratios can run as high as 0.5%, 0.75% or even more than that.

The good news is that the Schwab U.S. Dividend Equity ETF only imposes an annual expense ratio of 0.06% of the share price. This equates to just $0.06 per year for every $100 invested in SCHD. It’s a bargain because owning this fund eliminates the need for stock picking and can instantly diversify your portfolio.

Long-Term Dividend Growth

While broad diversification and low expenses are enticing features of the Schwab U.S. Dividend Equity ETF, the main attraction for many investors is the dividends. Currently, the SCHD ETF advertises a trailing 12-month distribution yield of 3.67%, which is impressive.

This raises the question of whether a dividend cut is likely to happen in the near future. Notably, the index that SCHD tracks is “focused on the quality and sustainability of dividends.” When you look at the high-quality dividend-paying stocks in the Schwab U.S. Dividend Equity ETF, you can feel confident that a dividend cut is unlikely.

It’s good when a fund’s dividends are sustainable; it’s even better when those dividends are not just sustained, but growing. Therefore, we should take a closer look to determine whether the Schwab U.S. Dividend Equity ETF’s quarterly dividend distributions have increased over time.

Before proceeding, please note that the SCHD underwent a 3-for-1 share split around a year ago. Thus, the dividend distributions discussed here are split-adjusted.

Going back to the dividends from March and June of 2021, the Schwab U.S. Dividend Equity ETF paid distributions of around $0.17 or $0.18 per share. By mid-2023, the quarterly payouts had climbed to more than $0.20 per share. 

The fund’s most recent distribution, from September of this year, was $0.26 per share. Clearly, the Schwab U.S. Dividend Equity ETF’s payouts have surged over time.

Don’t Over-Focus on the Near Term

It’s fine to keep track of the latest quarterly distributions, but there’s no need to over-focus on SCHD’s quarter-to-quarter payout changes. Some quarterly payouts from the Schwab U.S. Dividend Equity ETF were a few cents lower than the prior one, but this wasn’t really a red flag.

It’s just a fact of life that, with many ETFs, the quarterly distributions will fluctuate. This has been a pattern with the Schwab U.S. Dividend Equity ETF, but it shouldn’t be a deal breaker if you’re in it for the long haul.

If perpetual wealth is truly your goal, then the Schwab U.S. Dividend Equity ETF is a solid choice. The fund’s diversification adds a safety element while its low expenses help to sweeten the deal.

Additionally, the SCHD’s long-term dividend path appears to be on an upward trend. Consequently, passive income investors can relax and consider buying a stake in the Schwab U.S. Dividend Equity ETF with confidence.