dpThe Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has delivered a 13.4% annualized total return since its inception in 2011, while growing its payout at an 11.2% compound annual rate since 2017. If the dividend ETF maintains its current pace, the share price would grow from $35 to around $90 by the end of 2035, while the yield on cost would rise from 3.1% to over 8% by then.
Here’s a look at what drives that view.
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High income and growth
The Schwab U.S. Dividend Equity ETF has been a compounding machine. The share price has risen at an average annual rate of around 10% since inception. Add in the high-yielding dividend (SCHD currently yields 3.1%), and the annualized total return is 13.4%. That’s a fantastic return for a lower-risk, dividend-focused investment. A big driver of those returns is the rapidly rising dividend.
If the ETF’s price continues to grow by more than 10% annually, it would approach $90 a share by the end of 2035. That’s a more than 150% increase. Meanwhile, if the dividend continues to grow at its recent historical pace of more than 11%, it would rise from the current annualized rate of $1.05 per share to over $2.90 per share by the end of 2035. That’s more than an 8% yield at the current cost.
Now, there are lots of caveats here. SCHD is a collection of 100 high-yielding dividend stocks based on an index that revamps its holdings once a year. The current group of company have only grown their dividends at a 9.4% annualized rate over the last five years, though that’s a tick faster than the prior iteration’s 8.6% five-year average annual rate. If the fund’s dividend growth rate slows in the future, it would likely fall well short of the projected 2035 income level and share price.
However, the fund has an excellent long-term record of investing in higher-yielding companies that deliver above-average dividend growth and stock price appreciation. That makes it a great core, wealth-building holding for any portfolio.
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