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The Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD) hit its latest record on Nov. 4, closing at $36.21. Shares trade around $35.50 as I write this, just under that peak.
Even near the top, though, the fund's dividend stocks pay much more than the broad market. Its past four quarterly payouts come to about $1.05 a share, a yield of about 3%. The Vanguard S&P 500 ETF (NYSEMKT:VOO), by contrast, yields about 1.1% on its past four payments.
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With a $5,000 investment, the dividend fund would pay about $150 a year to reinvest, against about $54 for the S&P 500 fund.
By my math, $5,000 put in the Schwab fund today could rise to about $6,700 by the end of 2030 -- roughly 7% a year. The same $5,000 in the S&P 500 fund, under the same assumptions, reaches about $6,200.
The Schwab fund's yearly payout climbed around 5% in 2025, according to Schwab's distribution history, and the S&P 500 fund's rose about 5% too. I assumed both keep growing at that pace through 2030.
For the dividend fund, I think that's a cautious figure. Its yearly payout grew around 9% a year in the five years through 2025. But the rate has slowed sharply. Payout growth was about 5% in 2025 after about 12% in 2024, and the fund's past four payments are only around 2% above the previous four. I didn't want to base the estimate on a rate the fund has already left behind.
Then, I assumed each fund's share price rises 4% a year, a point slower than its payout. This lets both yields inch up a bit by 2030 (in other words, investors pay slightly less for every dollar of income than they do now). And every dividend gets reinvested along the way, before taxes.
With these numbers, $5,000 buys about 141 shares of the Schwab fund now. Reinvesting each quarterly payment takes that to about 160 shares by the end of 2030, when the payout might be roughly $1.29 a share and the price around $41.70. Multiply the 160 shares by the price, and the stake totals about $6,700.
Notably, about $800 of the gain of about $1,700 comes from reinvested dividends. With the S&P 500 fund, reinvested dividends add just around $280.
Of course, the S&P 500 fund hasn't behaved the way my estimate assumes. From the end of 2020 through today, its price has gained around 13% a year, while its yearly payout grew about 6% a year from 2020 to 2025. Investors kept paying more for every dollar the index's companies paid out, and the yield fell from about 1.5% to around 1.1%.
The dividend fund's price, meanwhile, has risen about 9% a year since the end of 2020, about in line with its payout.
And the index fund might not need much help to catch up. If its price climbed about 6% a year rather than 4%, the S&P 500 fund could match the dividend fund's $6,700. Its yield would just need to fall to about 1% by the end of 2030.
Still, I wouldn't work a higher valuation into the estimate.
Vanguard's numbers had the S&P 500 fund's holdings at around 25 times earnings as of Sept. 30.
For the value stocks in the Schwab fund, Schwab's number for that date was around 18 times earnings. In other words, investors already pay much more for every dollar the index's companies earn.
The bigger risk to my estimate is the dividend fund's own payout. Say it keeps growing at the 2% rate of its past four payments, and the price rises a point slower than that. Then $5,000 might reach only about $5,900 by the end of 2030.
Even in that case, about $700 of the gain of about $900 comes from reinvested dividends -- the part of the return that depends less on what investors choose to pay for the shares.
I think around $6,700 is a reasonable target for the Schwab fund. Whether it beats an S&P 500 fund probably depends on how much more investors are willing to pay for the index's earnings, and I wouldn't bet big either way.
But almost half the dividend fund's estimated gain comes from payouts, not from a higher price. For investors who want a growing stream of income, I'd consider buying shares now, even this close to a record.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
Schwab's Dividend ETF Pays About 3%. Here's What $5,000 in It Could Be Worth by 2030. was originally published by The Motley Fool
