Key Points
The Schwab U.S. Dividend Equity ETF offers a yield triple the S&P 500's level, making it popular among income-seeking investors.
The ETF has also historically grown its dividend at a healthy rate.
Many investors are using the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) to collect passive income. For example, if you want to generate $500 a month in passive income from this ETF, you'd need to invest $191,800 at the current share price to hit that goal.
The math works out like this. The ETF has a trailing 12-month yield of 3.13% based on the roughly $1.05 per share it has paid out over the past year. At its recent price of around $33.50, you'd need to own 5,725 shares to reach your desired income level of $1,500 per quarter, since this ETF makes quarterly distributions.
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Building income one month at a time
Most investors don't have $191,800 sitting idle, which might make reaching this monthly income target daunting. However, there are many ways to reach this income level over time, depending on how much you can invest now and each month.
Before we get to those scenarios, it's essential to point out that the Schwab U.S. Dividend Equity ETF isn't just a current yield play. In addition to offering a yield that's triple the market's average (the S&P 500 currently yields around 1%), SCHD has grown its dividend at a compound annual rate of more than 11% since 2017. I'm going to be a little more conservative and assume 9% annual dividend growth.
I modeled three scenarios:
- The income starter: $250 month monthly investment with no lump sum.
- The income builder: A $5,000 initial investment and a recurring $500 monthly investment.
- The income accelerator: A $10,000 lump sum and investing $1,000 a month.
Here's a look at when each scenario would hit the monthly income target, assuming SCHD's share price also rises by 9% annually:
Author's chart and calculations. NOTE: Assumes dividend reinvestment.
Using these assumptions, the income accelerator would reach the target in a little over eight years, while the starter path would take another decade. The bottom line is that SCHD isn't a quick path to income, but one that you can achieve in time.
Matt DiLallo 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.