2 Schwab ETFs to Buy in May to Generate Big Passive Income In Retirement

Dividend stock investing offers retirees a dependable way to generate passive income, ensuring financial stability in a time when fixed income options like Social Security often fall short. 

Historically, dividend-paying stocks, particularly in sectors like utilities and consumer staples, provide consistent cash flow and tend to outperform non-dividend stocks during market downturns, with lower volatility. However, selecting individual stocks carries risks, such as dividend cuts or company-specific setbacks, as seen with 3M’s (NYSE:MMM) 2024 dividend cut after 60 consecutive years of dividend increases. 

Exchange-traded funds (ETFs) mitigate these risks by spreading investments across a basket of stocks, reducing the impact of any single company’s failure, and offering lower fees than actively managed funds. For retirees seeking substantial passive income in May 2025, the two Schwab ETFs below stand out for their high yields, diversification, and stability.

Schwab U.S. Dividend Equity ETF (SCHD)

The first top pick for retirees aiming for big passive income is Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). It offers a 4% dividend yield, nearly three times the S&P 500’s 1.3%, and only the second time in its history where the yield has been so high. 

The ETF tracks the Dow Jones U.S. Dividend 100 Index and holds 103 high-quality U.S. companies like AbbVie (NYSE:ABBV), Amgen (NASDAQ:AMGN), and Cisco Systems (NASDAQ:CSCO), selected for consistent dividends and strong financials. 

Its focus on firms with sustainable payouts ensures reliability, with a 10-year dividend growth CAGR of 11.8%, meaning a $1,000 investment in 2015 would yield $3,100 in dividends by 2025. SCHD’s portfolio, valued at $66.9 billion, balances income with stability across consumer staples and healthcare. With an ultra-low expense ratio of 0.06%, among the lowest in its class, SCHD ensures retirees keep more of their returns. 

A recent 3-for-1 share split in October 2024 increased affordability without altering total investment value. It also hiked its payout by 22% last quarter. 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. For a $1 million investment, SCHD could generate $41,000 annually, making it a cornerstone for retirement income.

Schwab Fundamental U.S. Broad Market Index ETF (FNDB)

The Schwab Fundamental U.S. Broad Market Index ETF (NYSEARCA:FNDB) is the second Schwab ETF retirees need for big passive income streams. It takes a diversified approach to passive income by focusing on the largest U.S. companies while emphasizing fundamental metrics like sales, cash flow, and dividends. 

As of April 2025, FNDB yields 2.7% and holds 1,668 stocks, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and ExxonMobil (NYSE:XOM). It tracks the Russell RAFI U.S. Index, weighting companies based on fundamentals rather than market cap, which reduces exposure to overvalued stocks while enhancing stability. 

FNDB’s top sectors include financials (18%), technology (15%), and healthcare (12%), offering broad exposure,. Its expense ratio of 0.25% is competitive, though higher than SCHD’s, and its $857 million in assets reflect steady investor interest. FNDB has delivered a five-year annualized return of 20%, with a 14% dividend growth rate, making it a solid complement to SCHD. 

For retirees, a $1 million investment in FNDB could yield $28,000 annually, with potential for growth as fundamentals-driven investing often outperforms in late market cycles. FNDB’s tax efficiency further boosts net returns for retirees.

Key takeaways

Both the Schwab U.S. Dividend Equity ETF and the Schwab Fundamental U.S. Broad Market Index ETF are excellent ETFs to buy in May for retirees seeking big passive income. SCHD’s 4% yield and focus on dividend quality, paired with FNDB’s 2.7% yield and fundamentals-driven approach, create a balanced strategy.

Although there are risks to each, such as tech sector volatility and energy price fluctuations, their diversification, low fees, and yields make them ideal for a secure retirement income stream.

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