Want $1,000 a Month in Passive Income? Start With This Brilliant Dividend ETF.
Generating $1,000 a month in dividends is a simple process but it usually requires a substantial capital outlay. The Schwab U.S. Dividend Equity ETF(NYSEMKT: SCHD) is perhaps the best dividend ETF for accomplishing this. Not only does it offer a much-above-average yield, but it's also backed by a portfolio of durable, high-quality companies.
That's exactly what you want in your portfolio, so let's run through the path for how to get there.
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Why SCHD works as a passive income generator
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index. It starts with a universe of U.S. equities that have paid dividends for at least 10 consecutive years. From there, it examines the stock's dividend growth rate, yield, and several fundamental metrics, including return on equity (ROE) and cash flow-to-debt ratio. The 100 stocks with the best combination of these factors make the cut for the portfolio.
It's the combination of dividend yield and dividend quality that makes this fund so effective. The screens act as cross-checks on each other, so investors can get the best of both worlds. Choosing stocks based solely on yield can leave investors vulnerable to yield traps or potential dividend cuts. The quality screen here helps steer clear of that and gives people a sustainable high yield along with the quality portfolio.
This is exactly what you want from your dividend ETFs .
How to get $1,000 per month from SCHD
The Schwab U.S. Dividend Equity ETF has a current yield of 3.1%. To generate the equivalent of $1,000 per month in dividend income (the fund actually makes its distributions quarterly), investors would have to earn $12,000 over the course of a full year.
Doing the math, someone would need to invest approximately $387,000 to produce $1,000 in monthly dividends. That number is based on the fund's current yield, which can fluctuate over time.
December is the next big test
Since its 2011 launch, the Schwab U.S. Dividend Equity ETF has been able to increase its total annual dividend every year for the past 14 years. It's a streak very few dividend ETFs can claim.
But December's distribution will determine if the fund can make it to 15 years. Through the first three quarters of 2025, the fund paid $0.7694 per share. Through the first three quarters of this year, it paid $0.7759. That's only around 1% higher than last year. Over the past 5 years, the fund has grown its dividend by 7% annually, so the growth rate has slowed substantially this year.
Still, the Schwab U.S. Dividend Equity ETF has consistently delivered a few things -- dividend growth, portfolio quality, an above-average yield, and a solid long-term track record. For anybody looking to generate dividend income from their portfolio, that's a tough combination to beat.
Should you buy stock in Schwab U.S. Dividend Equity ETF right now?
Before you buy stock in Schwab U.S. Dividend Equity ETF, consider this:
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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 .
Want $1,000 a Month in Passive Income? Start With This Brilliant Dividend ETF. was originally published by The Motley Fool
