This ETF can turn $500 into a $851,000 portfolio per month, paying $30,000 in annual dividend income

Many investors are eager to build a portfolio that can pay enough dividends to fund their retirement goals.

If you can find stocks that always raise dividends, it usually offsets the effects of inflation, and then there are stocks that you may find yourself in an enviable position where you can put your main investment out of popularity. Instead, you can live from dividends and pass the stock to the heirs or donate it to charity.

However, building a portfolio of high-quality dividend stocks is not easy. Fortunately, there is an exchange-traded fund (ETF) that can take care of it for you. And, if you invest early until retirement, you may end up with a portfolio worth over $850,000, with a dividend payment of about $30,000 per year.

Two simple factors that can help investors discover that companies that may raise dividends in the future are the increase in dividend history of management and the financial status of the company. If management consistently raises dividends and has the financial ability to continue doing so, it is likely to continue this streak of wins. that's why Schwab US Dividend Equity ETF (nysemkt:schd) It is an effective way to invest in high-yield dividend growth stocks.

Index funds follow Dow Jones Jones U.S. Dividend 100 Indexof which 100 stocks were selected, and dividends increased for at least 10 consecutive years each year. It ranks each qualified company by several criteria: free cash flow to debt ratio, return on equity, dividend yield and dividend growth rate. The index includes the top 100 companies (based on a comprehensive ranking of all four criteria) and is weighted by market capitalization.

At the time of writing, the 10 largest companies in the index (and their dividend yields) are as follows:

1. Coca Cola (2.8%)

2. Verizon Communications (6.2%)

3. Otria (6.8%)

4. Cisco Systems (2.6%)

5. Lockheed Martin (2.8%)

6. conocophillips (3.7%)

7. Home Depot (2.5%)

8. Herringbone (5.1%)

9. Texas Instruments (3%)

10. Abbvie (3.6%)

As you can see, you can add high-yield dividend stocks as well as stocks with strong growth to support future spending. The result is that the overall yield of the 12-month lagging distribution based on the ETF is about 4%. However, considering that most members will pay higher next year than the previous year should yield higher.

The expense ratio is only 0.06%, and the cost of investing in this ETF is low and is consistent with some of the most popular index funds on the market. The Dow Jones Dividend Index decision to weight components by market cap (4% weight) makes it a very effective tracking index and reduces the risk of any high-yield stocks associated with any high sound recommended by the filter. If the market bids for the value of these stocks, over time they will account for a lower percentage of the index, while high-quality businesses will rise to the highest.

A monthly investment of $500 into the Schwab U.S. dividend equity ETF will eventually result in a considerable portfolio. Accumulating stocks over time, automatic reinvestment from ETFs quarterly distribution will ensure that your total return on investment is good.

Since its inception in 2011, the fund's total annual return rate has been 12.2%. This is a great performance, but it is worth pointing out S&P 500 The index beats the ETF with a total annual return of 14.5%. The gap between the two has widened as growth stocks perform more than growth since 2023. Historically, the S&P 500 averaged returns were about 10%, while the 9% difference was more appropriate because the conservative estimate of the total annual returns of ETFs were more appropriate.

The 4% distribution yield of ETFs is also relatively high, but it may drop over time as the Fed lowers interest rates. That is, there is no indication what the popularity rate will be good in the future. A yield of 3.5% is a reasonable estimate of future ETF output.

With these assumptions in mind, this is if you automatically reinvest your dividend, a $500 monthly investment in the Schwab US dividend equity ETF may grow over time.

Author calculation.

There are some important warnings about the above situation. First, it is based on forecasts based on expected returns and dividend yields.

More importantly, these returns will not be linear over time. The market is full of ups and downs. The order and size of these ups and downs can have a huge impact on the end result of your investment. That is, the longer your holding period, the more your results will look like the table above.

Another important consideration is the impact of inflation: $30,000 won’t have the same purchasing power as it is today for 30 years. This means that if investors want their future purchasing power to be equivalent to $30,000 today, they must adjust their expectations or strategies. For example, this may mean increasing monthly contributions.

Although your actual results may differ from the table above, the key point for most investors is to start and stay consistent. If you are looking for dividend growth and income in retirement, the Schwab US Dividend Equity ETF is a great option.

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Adam Levy has no position in any of the stocks mentioned. Motley Fool owns and recommends Abbvie, Chevron, Cisco Systems, Home Depot and Texas Instruments. Motley Fool recommends Lockheed Martin and Verizon Communications. Motley Fool has a disclosure policy.

The ETF could turn $500 into a $851,000 portfolio each month, initially published by Motley Fool for $30,000 in annual dividend income