1 No-Brainer Dividend ETF to Buy Right Now for Less Than $1,000
One reason I’m a fan of dividends exchange-traded funds (ETFs) they combine my two favorite parts of investing: guaranteed income and ETFs. Stock price appreciation is great and undoubtedly appreciated, but it’s nice to own dividend stocks and know that you’ll be rewarded no matter what the stock’s price movements are.
And ETFs are great because they allow you to cover a lot of ground and check many investment boxes with just a few investments. Combine the two and voila; You have a more rewarding and less risky investment than investing in individual stocks.
It doesn’t take a significant amount of money to realize value from a dividend ETF either. Even if you have less $1,000 for investment, The following dividend ETF is a great option to consider adding to your portfolio.
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If you’re looking for a high-quality dividend ETF, look no further Schwab US Dividend Stock ETF(NYSEMKT:SCHD). Projection Dow Jones US Dividend 100 index, SCHD has criteria that act as a de facto veterinarian for you. To be included in the ETF, a company must have paid dividends for at least 10 consecutive years and have a healthy balance sheet and solid cash flow.
Below are some notable names from different major sectors of the US economy:
Energy (19.34% of ETF): Strip And ConocoPhillips
Basic consumer products (18.50%): Coca Cola And PepsiCo
Health services (16.10%): AbbVie And Merck
Industry (12.28%): LockheedMartin And Combined Package Service
Financials (9.37%): Fifth Third Bancorp And T. Rowe Price
When you invest in SCHD, you can be confident that you are investing in an ETF that contains a broad portfolio of high-quality companies. Most of these are large-cap stocks; 58% of companies in SCHD have a market capitalization of over $70 billion.
Looking at the upper tier of dividend ETFs, SCHD has one of the highest dividend yields. At the time of this writing, its yield is 3.8%, which is three times the S&P 500 average. It is also slightly above the average of the last five years.
Dividend yields fluctuate with stock prices, but over the past few years SCHD has consistently delivered a higher yield than many S&P 500 dividend stocks and the S&P 500 itself.
If you invest $1,000 in SCHD and earn a 3.8% return (which it won’t, but we’ll assume it does for the sake of example), it will pay $38 per year. This isn’t life-changing money by any means, so it can often be more effective if you reinvest dividends to buy more shares.
Most brokerage platforms offer a dividend reinvestment plan (DRIP), which automatically reinvests dividends you receive into additional shares of the stock or ETF that pays them. This works behind the scenes, making the process seamless. Ideally, you’ll keep reinvesting the dividends for more shares until you have enough shares to get a reasonable amount when you decide to take a cash payout.
Over the past decade, SCHD’s total annual return has averaged 11.3%. At an average annual rate of 11%, a single $1,000 investment would grow to just over $8,000 in 20 years, which would then translate to about $300 annually at a 3.8% return. If you add $100 per month, it comes to about $85,100 and you’ll pay over $3,200 annually.
Specific dollar figures will of course vary based on returns, but this example shows how powerful compounding returns can be, especially when it comes to dividends and leveraging your brokerage platform’s DRIP. The Schwab U.S. Dividend Equity ETF has all the tools (and assets) to be an excellent long-term investment. The key is patience.
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Stefan Walters They have positions in Coca-Cola. The Motley Fool has positions in and recommends AbbVie, Chevron, Merck, T. Rowe Price Group and United Parcel Service. The Motley Fool recommends Lockheed Martin. The Motley Fool has a feature disclosure policy.
