If You'd Invested $5,000 in SCHD 10 Years Ago, Here's the Passive Income You'd Have Today
Key Points
Like stock prices themselves, dividends tend to grow over time.
Although past performance is no guarantee of future results, it is a pretty good indication of what’s likely to happen.
If you know you’re going to need reliable investment income in the future, consider opening these positions now and reinvesting these dividends until you need their income.
Income-minded investors obviously like dividend stocks. What most people may not fully appreciate, however, is that much of the current cash flow in many income portfolios comes from dividend-paying positions established a long time ago. They've grown into great dividend holdings.
To this end, while stepping into a new trade in the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) here and now plugs you into a respectable yield of 3.2%, how much more would you be getting if you'd bought $5,000 worth, say, 10 years ago?
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It's not too tough to figure out. At just over $14 per share, a $5,000 purchase made in early November 2016 would have bought you about 316 shares. You'd still own those same 316 shares, but thanks to capital appreciation, the trade would be worth $12,700 today. Each of those shares would also generate around $1.05 in annual dividend income, for a yearly total of $333. That's measurably better than the split-adjusted $235 you would have been getting on an annualized basis back then.
You would also have received around $2,840 in dividends in the meantime, by the way, assuming you weren't reinvesting these dividends in more shares of SCHD as they were paid out. If you had instead reinvested these dividends over the past decade, the position would now be worth $17,700. In this case, although you wouldn't have collected any dividend income since then, your holding would now be capable of producing nearly $570 in yearly payments. That's not an insignificant difference.
The big takeaway? You may not need investment income just yet. If you know you'll need it in the future, though, it wouldn't be wrong to begin establishing those positions now. Just bear in mind you might want to reinvest any dividend payments in the meantime.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.