Dividend stocks have a tremendous following in the investing community. Who doesn’t like the idea of the companies you invest in paying you to hold their stock? Yet, the nuances of dividend investing are more debated because there are many ways to go about a dividend strategy, and the right stock for you might not make sense for another investor.

If you’re unsure how to build your dividend stock portfolio, you might want to look at the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).

It checks all the essential boxes: yield, growth, and diversification. Plus, it fits into almost any investing budget. The fund recently executed a 3-for-1 stock split, so shares cost just $30 today.

Any long-term dividend investors should consider buying and holding the ETF forever. Here is what makes this ETF so good.

If you didn’t already know, exchange-traded funds (ETFs) are groups of individual stocks that trade under one ticker symbol. An ETF might mimic a stock market index or follow an investment strategy. The Schwab U.S. Dividend Equity ETF aims to replicate the construction and performance of the U.S. Dow Jones Dividend 100 Index.

The ETF has 103 holdings, including well-known dividend stocks like Cisco Systems, Home Depot, BlackRock, Bristol Myers Squibb, Lockheed Martin, Chevron, Verizon, Pfizer, United Parcel Service, and PepsiCo. Building a portfolio takes a lot of work and time, and there are thousands of publicly traded companies to choose from.

When you buy the Schwab U.S. Dividend Equity ETF, that work is done for you and only costs you an expense ratio of 0.06%. You’re getting a well-diversified dividend stock portfolio from the moment you own your first share of this ETF.

Dividend investors usually fall into two camps:

1. Those who want to maximize their dividend income early (high dividend yield, slower dividend growth).

2. Those who want a dividend that grows more over time (low starting yield, faster dividend growth).

The Schwab U.S. Dividend Equity ETF does a pretty good job of appealing to both sides of the fence.

The ETF’s current starting yield is 3.4%, which is consistently higher than the S&P 500‘s:

Income-focused investors should also consider the current interest rate environment. The Federal Reserve recently cut the economy’s benchmark interest rate for the first time since the pandemic. It’s unclear how low rates will ultimately go, but if the economy is entering an “easing cycle” of declining rates, it will lower yields in places like savings accounts. This will force investors to look elsewhere for income, making the Schwab U.S. Dividend Equity ETF more attractive.

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Most stocks offer high yields or growth, but the Schwab U.S. Dividend Equity ETF offers surprisingly strong growth, considering its high starting yield. As shown below, the ETF has raised its dividend by 174% over the past decade.

You won’t find many individual stocks with that combination of yield and sustained dividend growth!

The Schwab U.S. Dividend Equity ETF isn’t perfect. It has lagged behind the S&P 500 in total returns over the past decade, primarily because it doesn’t have the exposure to big technology companies that the S&P 500 does. These multitrillion-dollar technology companies have grown on cloud and artificial intelligence opportunities and have helped lift the broader market. I would argue that the Schwab U.S. Dividend Equity ETF has competed very well, given the lack of technology exposure, and you’re probably buying the ETF for the higher dividends, not purely for total returns.

It’s not the perfect ETF for every investor, but it’s hard to find a more well-rounded ETF than the Schwab U.S. Dividend Equity ETF. Any long-term dividend investor should consider adding and holding shares over time, building a snowball of dividends that pays you more and more as it grows larger.

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*Stock Advisor returns as of October 21, 2024

Justin Pope has positions in Chevron. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Cisco Systems, and Home Depot. The Motley Fool recommends Lockheed Martin, United Parcel Service, and Verizon Communications. The Motley Fool has a disclosure policy.

1 High-Yield Dividend Growth ETF to Buy With $30 and Hold Forever was originally published by The Motley Fool