If You Invested $10,000 In SCHD 5 Years Ago, This Is How Much Cash From Dividends You Would Have Today

In the not too distant past, a focus on dividends was considered the province of retirees and conservative investors who shied away from market volatility. Taking risks with high flying tech stocks led to dramatic gains during bull markets, but their whipsaw corrections before climbing to new highs were not for the faint of heart. 

The bull market of the past decade has concurrently led to the exponential proliferation of the FIRE (Financial Independence Retire Early) ethos, especially among young people. The DIY mindset, the rise of cryptocurrencies, and the spread of one click stock buying platforms from RobinHood and others have contributed to the rise of FIRE. Since it strategizes a strong work ethic, aggressive investing, a thrifty lifestyle, and an independent control over one’s retirement as the path towards a wealthy and happy post-employment life, FIRE devotees have built a movement among Millennials and Gen-Z. 

Too young to have experienced the dotcom bust of the 1990s, the post 9/11 market woes that presaged The Gulf War, and the 2008 subprime mortgage banking collapse, many FIRE adherents have never known a bear market. The recent reactive market turbulence to President Trump’s tariff policies have caused thousands of point swings on the Dow Jones Average, and have given a dose of investing reality to those FIRE adherents who only thought markets only went up. 

Discovering that their risk tolerance was weaker than anticipated, a good many FIRE adherents have turned to dividend stocks and funds with a growth component that can still deliver their FIRE objectives, albeit at a slower pace and with fewer sleepless nights. 

Schwab US Dividend Equity ETF

In their search for an alternative to high-flying Magnificent 7 stocks or S&P 500 Index ETFs heavily weighted with those stocks, the Schwab US Dividend Equity ETF (NYSE: SCHD) is an ETF that meets the growth and stability requirements of FIRE followers.

Designed to track the Dow Jones U.S. Dividend 100 Index, stock inclusion in SCHD must meet the following criteria:

• Minimum of 10 consecutive years of dividend payments.
• Floating Market Capitalization minimum of $500 minimum.
• Minimum Average Daily Trading Volume of $2 million.

SCHD uses a 4 step calculation that takes free cash flow, total debt, return on equity, indicated annual dividend, and five year dividend growth rate to gauge a ranking. The top 100 scoring companies are included in the index. If two companies have the same score, the one with the larger dividend gets the higher ranking. At the time of this writing, other SCHD details include:

The top 5 weighted holdings in SCHD are:

1. ConocoPhillips – 4.42%
2. Coca-Cola – 4.41%
3. Verizon Communications – 4.28%
4. Lockheed Martin – 4.24%
5. Altria Group – 4.21%

The Dividend Difference

As the calculator demonstrates, a $10,000 investment in SCHD back in January, 2020 would be worth $16,105.12 today, at the time of this writing, which equates to a 61.05 % ROI. The total return would be $6,105.12.   . 

The annualized return equates to 9.24%. This calculation also includes compounding through reinvested dividends. The reinvested dividend value equates to $1,103.91. The cash dividends paid out from the initial 172.21 shares equates to $2,277.66 . If the dividends were not reinvested, the total return would be $3,375.24 . Therefore, reinvesting the dividends enabled an additional return difference of $2,729.88 over the 5 year span.

The Power of Compounding

The principles of wealth building through dollar cost averaging and compounding are standard practice among FIRE devotees. In pure growth asset scenarios, the investor needs to keep adding funds in order to fuel additional purchases. As the calculations clearly demonstrate, the dividends supplied by SCHD provide sufficient capital for buying additional shares and perpetuating growth even without the benefit of additional capital.  

By using dividend compounding, FIRE adherents can build wealth at an approximate 10% annual clip, and there are also additional benefits:

• By adding additional investment capital, an investor can multiply the growth compounding leverage on top of the dividends at their discretion.
• As SCHD’s dividend growth rate is continuing in double digits annually, the dividend reinvestment component will also add annual buying power to accelerate growth. 
• The dividends from SCHD can be diverted into liquid cash should an emergency need for their deployment arise.

For those still seeking a strong growth rate but with lower volatility and an income factor for greater flexibility, SCHD is a strong candidate for consideration, as the numbers display. 

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