My top financial goal for this year is to grow my passive income. I want to eventually generate enough of it to cover my family's basic living expenses. That would help me reach a level of financial freedom where I wouldn't have to worry about losing my job.
My strategy is simple. I buy high-quality, high-yielding dividend stocks with strong records of dividend growth. One of the best ways to gain exposure to top-notch, high-yielding dividend-growth stocks is through the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD). That's why I'm loading up on this top ETF this year, which will set me up to generate a lot more dividend income in 2027.
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The Schwab U.S. Dividend Equity ETF is a passively managed fund that tracks the Dow Jones U.S. Dividend 100 Index. That index screens companies based on several dividend-quality characteristics, including yield and five-year dividend growth rate. It reruns its screens once a year, kicking out companies with slipping dividend quality characteristics and replacing them with even better ones. It aims to track the performance of 100 of the highest-quality dividend stocks. At its last reconstitution in March, the index deleted 22 stocks and replaced them with 25 new ones.
The Schwab U.S. Dividend Equity ETF holds these top-tier dividend stocks. The fund currently has a yield of 3.3% based on dividend distributions over the last 12 months. That's over three times higher than the S&P 500's dividend yield (around 1%). To put the current yield into perspective, every $1,000 invested in the fund would generate about $33 of annual dividend income.
Meanwhile, the fund's holdings have grown their payouts by an average of more than 9% over the last five years. This dividend growth focus has enabled the ETF to pay a steadily rising stream of dividend income:
I already own several high-quality, high-yielding dividend stocks, including four of SCHD's top 10 holdings. However, I have found the fund to be a great addition to my income portfolio, as it further diversifies my income sources. For example, four of the ETF's top holdings are healthcare stocks, none of which I own.
Its top holding is UnitedHealth Group (NYSE: UNH), which accounts for 4.4% of its assets. The health insurance giant currently pays a 2.2%-yielding dividend, which, while above average, is below my target for a core income holding. UnitedHealth has been paying dividends since 1990 and recently raised its payment by another 5%, extending its growth streak to 16 consecutive years. With robust, growing cash flows, UnitedHealth remains well-positioned to continue increasing its dividend.
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