Investing
Dividend stocks have proved themselves excellent at allowing investors to grow tremendous wealth over time, while providing a buffer against market corrections. It’s not that dividend stocks don’t go down, but their payouts provide a regular income stream that softens the blow.
Even so, over long periods of time, dividend stocks are hands down the best protection against losing money. Data from Hartford Funds and Ned Davis Research showed that since 1930, dividend stocks on the S&P 500 have never had a losing decade. That includes the Great Depression of the 1930s and the “Lost Decade” of the 2000, where a combination of the dot-com bubble, 9/11, and the financial and housing markets collapsed.
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Dividend investing has been one of the surest methods for accumulating wealth over time.
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The Schwab U.S. Equity Dividend ETF (SCHD) is a popular choice for investors because of its track record of raising its dividend.
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The ETF’s yield recently exceeded 4%, something that has occurred only one time before, and investors may wonder what it means for their investment.
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For that reason, many investors turn to the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD), an exchange-traded fund that owns 100 of the top dividend-paying stocks on the market, including Coca-Cola (NYSE:KO), Altria (NYSE:MO), and Chevron (NYSE:CVX).
By being careful in its selection of which stocks to include in the ETF (it recently completed its annual reconstitution), SCHD has generated total returns of 205% since inception in 2011, all the while steadily increasing its dividend payments to shareholders.
Yet just like the dividend stocks it holds, SCHD’s stock price has fallen at times, sometimes quite sharply. Just in 2025, the ETF is down almost 7% and over the past six months sits 11% lower.
Yet something very rare recently occurred with SCHD, so unusual in fact that it has only happened one time before: its dividend yield jumped to 4.1% annually.
Is this a warning for income investors or a signal to buy more SCHD?
A strong record of growth
Since 2015, the Schwab U.S. Dividend Equity ETF has averaged a yield of 3% and prior to 2022, the yield was typically below that rate. The only other time SCHD sported a yield so high was at the height of the global pandemic in 2020 when the stock market lost a third of its value in a matter of weeks. I was then the ETF’s yield shot up to almost 4.4%.
Breaking through the 4% yield threshold means that SCHD’s starting yield is now on par with most high-yield savings accounts. However, unlike HYSAs, the ETF’s dividend payments won’t remain static, they will instead grow, and grow very fast.
Over the past 10 years, SCHD has raised the payout at an 11.8% compound annual growth rate, and it is almost 13% over the past five years. Just last quarter, the ETF raised its dividend payment to $0.2488 per share, a better than 22% increase from the year-ago period. And it does so at a very low 0.06% expense ratio.
While the starting yield is nice, dividend growth investors should instead focus on their yield on cost. What that reveals is how much income we receive based on the original cost we paid for the stock.
A wealth of opportunity
Had you bought SCHD back in 2015 when it was yielding 2.89%, that investment would have a yield on cost of almost 8% today. And it is important to note that does not take into account reinvesting dividends, which would put the figure even higher. That means the yield jump should have investors quite excited.
If you bought the ETF today and its share price and dividend growth rates maintained their current trajectory, in 10 year’s time, SCHD’s yield on cost would be over 14%, while over 40 years it would be more than 550%. And, again, that’s not including reinvested dividends.
It indicates a $100 investment today would be paying you around $550 in income every year. If we want to be more conservative (and we should be when projecting growth), assuming 10% growth rates for both the stock and dividends — below SCHD’s historical average — the ETF’s yield on cost in another decade would be around 11% and 40 years out, would be almost 190%.
The notable thing is that 11% yield on cost is substantially higher than SCHD’s yield on cost over the past 10 years. This is why investors should be excited by SCHD’s position today. It underscores the value and opportunity of dividend growth investing through the ETF.
At just $25 per share today, the Schwab U.S. Dividend Equity ETF remains one of the best long-term picks you can make for your portfolio.
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