SCHD Yields 3.3% and Could Finish Its 15th Year of Consecutive Dividend Increases in 2026
Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) consistently pays more than $1 in annual dividends per share.
Its strategy, built around quality, yield, and dividend growth, helps ensure the income stream will continue to grow over time.
This dividend ETF is easily more attractive than pure yield-based strategies like the Vanguard High Dividend Yield ETF (VYM).
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) yields 3.3% for its shareholders, with a trailing 12-month dividend payout of roughly $1.05 a share. If it keeps up its past track record of steady payment increases, which it historically has done, it's on pace for its 15th consecutive year of dividend growth.
But the yield is only part of the overall picture. It has a five-year annualized dividend growth rate of 7.5% and a 10-year average growth rate of 10.2%. That helps keep shareholders' income growing well ahead of inflation. Plus, any investor who bought the fund five years ago is earning more than 3.3% on their original investment, because the total dividends annually have kept climbing year after year.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Image source: The Motley Fool.
SCHD: Built for quality, yield, and long-term dividend growth
That track record of dividend growth is by design. The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which requires 10 consecutive years of dividend payments just for a stock to be considered. Potential components are screened for cash flow to debt, return on equity (ROE), dividend yield, and the five-year dividend growth rate.
These quality screens help de-emphasize companies with too much debt or that fail to grow their dividend at a healthy pace. Companies demonstrating the best combination of these factors make the cut for the final portfolio. The aim is to find companies that can keep growing their dividends and yields as their share prices rise.
This strategy is likely to produce a higher-quality yield over time than more generic strategies such as the Vanguard High Dividend Yield ETF (NYSEMKT: VYM). The Vanguard fund starts with a very broad universe of U.S. stocks, forecasts dividend yields, and then simply picks the top half by yield for inclusion. It's a widely diversified portfolio but very non-specific, yielding only around 2.3%.
The Schwab U.S. Dividend Equity ETF's focus on quality, durability, and sustainability creates a better overall long-term investment profile and doesn't rely solely on yield as its criteria.
The fund is built for those who aren't just building a strength-based dividend income stream but one that will regularly grow over time. The much-above-average yield is almost a byproduct of the strategy. Retirees, near-retirees, and wealth accumulators reinvesting dividends will benefit both from the reliably increasing quarterly payments and the long-term capital growth. It's the kind of investment opportunity that deserves consideration from virtually every investor.
David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.