6 hours ago
It's always good to get paid for the work you do, but it's even better to get paid while doing nothing, and that's the beauty of passive income. Whether it's rental income, royalties, or dividends, passive income is money that works while you're not working.
Thankfully, passive income in the stock market is as simple as buying a dividend stock or exchange-traded fund (ETF) and holding onto it. It's a way to get rewarded simply for being patient. You don't have to rely only on stock-price growth to make money.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Not all dividend stocks or ETFs are created equal, though. Some are built for long-term success, like the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). If you're looking for decades of passive income, it's a great go-to fund to consider today.
With some dividend ETFs, you have to worry about yield traps (an attractive yield on a bad business) because the ETF is mainly concerned with the yields of the stocks it holds. However, this isn't the case with this Schwab ETF. It only includes businesses with at least 10 consecutive years of dividend increases, a strong cash flow relative to debt, and a high return on equity.
This naturally keeps away subpar businesses that may not have a sustainable dividend. If you're looking for decades of passive income, sustainability is important. Here are SCHD's top 10 holdings and their dividend yields at the time of this writing:
| ConocoPhillips | 4.82% | 2.62% |
| Lockheed Martin | 4.79% | 2.10% |
| Chevron | 4.70% | 3.48% |
| Verizon Communications | 4.47% | 5.52% |
| Bristol Myers Squibb | 4.22% | 4.20% |
| Altria | 4.13% | 6.39% |
| Merck | 4.08% | 2.90% |
| Coca-Cola | 3.94% | 2.71% |
| Texas Instruments | 3.83% | 2.91% |
| PepsiCo | 3.81% | 2.71% |
Table by author. Dividend yields are as of March 18.
You'll notice that you don't see any big-name tech stocks or young, high-growth stocks. What you do see, however, are stable businesses that make consistent money and have stood the test of time. "Boring" businesses may not make headlines but are often more shareholder-friendly than those that do.
With an average dividend yield above 3% over the past decade, the Schwab U.S. Dividend Equity ETF is an attractive income option (around $30 paid per $1,000 invested annually). However, the real results can come by reinvesting your dividends and then taking cash payouts down the road.
