Investing $250 per Month in This Dividend ETF Could Generate Serious Passive Income by 2040. Here's How.
Key Points
The Schwab U.S. Dividend Equity ETF (SCHD) is one of the best ETFs out there for generating durable high yields.
Most people can start by investing a few hundred dollars a month, which is more than enough.
Here's how much a modest $250 monthly investment into SCHD can create in dividend income.
How much dividend income could a modest $250 monthly investment realistically produce by 2040?
It would be much easier, of course, if you just had $100,000 to drop into the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). Then you could start generating hundreds of dollars a month in passive income right away.
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Most people don't have that much. For many investors, buying shares regularly over many years is the path to long-term wealth creation.
Source: Getty Images.
Unfortunately, those initial investments won't generate much. This ETF currently offers a 3.3% annualized yield, which means you'll earn less than $1 a month for every $250 invested for the first several months.
But it's when your portfolio starts accumulating into a substantial sum over time, with each additional $250 monthly buy-in, that your account balance and passive income stream really start to grow.
After 12 months, you'll have $3,000 invested, which would generate around $100 in annual dividend income at its current yield. By the time you get to 2040, approximately 16 years from now, you'll have invested a total of $42,000 into the fund. If the yield is still 3.3% at that point, that translates to a monthly dividend of $115 or nearly $1,400 per year.
Not bad for adding just $250 a month over an extended period!
Remember, too, that if you reinvest those dividends back into the Schwab U.S. Dividend Equity ETF and accumulate more shares, your income stream grows even faster. It's not unreasonable to think that, given that many years and that many dividend reinvestments, you could generate closer to $150 a month or more.
The key to achieving this is consistent monthly investing, no matter whether the stock market is going up or down. Do that for the next 14 years (or longer), and you'll have built an impressive passive income stream.
David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.