Reddit Explodes Over Dividend Math: 'How Much Would The Annual Dividend Be For a $280K Investment?' – Investors Debate SCHD's Future Growth

Investing in the stock market is one of the most effective ways to build wealth in the long term. Among the various investment approaches, dividend investing has gained popularity, especially for those looking to generate passive income while still growing their portfolios. 

One of the most talked-about dividend-paying investments is the Schwab U.S. Dividend Equity ETF SCHD, known for its focus on high-quality U.S. companies that pay dividends.

Recently, a Reddit poster has sparked a heated debate about SCHD’s future dividend growth, with investors commenting on the math and the ETF’s potential performance over the next decade.

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The poster, with $280,000 available, is a newbie in the world of dividend investing and is trying to understand how much annual dividend revenue he could expect from SCHD over the next ten years, assuming a consistent dividend growth rate. The investor’s main goal is to generate passive income; still, he is worrying about the accuracy of his calculations and the possibility of the fund maintaining a high dividend growth rate.

“If SCHD dividend yield is 3.7% and the ETF is priced at $28, then it puts the annual dividend at slightly over $1. If the dividend increases by 10% annually how much would the annual dividend be in ten years if the stock remained at the same $28 price?” the poster asked.

To answer this, the Redditor used ChatGPT to calculate future dividends based on a 10% annual growth rate, with the calculations showing that it will grow from $1.04 to $2.45 over the next decade. For a $280,000 investment, this would mean an annual dividend revenue of $24,500 by the tenth year.

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Still, the poster isn’t sure if the calculations are reliable and realistic or if there are other factors to consider, so he sought insights on a Reddit investing community. The commenters shared their advice and thoughts with the investor, so let’s dive into those.

How Much Would The Annual Dividend Be For a $280,000 Investment? Reddit Debates

Reassess Your Expectations

Many Redditors pointed out the investor’s expectations are way too high, urging him to reassess his hopes. While his calculations assume a 10% annual dividend growth rate, several users emphasized that this might be overly optimistic, especially in the long run.

“If you assume conservatively: $10,000 shares at $28,5% growth, 5% dividend increase, and dividends reinvested quarterly, you end up with a $674,000 portfolio and $18,000 dividend payout. This is probably a more realistic scenario and outcome,” a Redditor said.

One user replied to the above comment suggesting that it’s best to expect lower growth rates to avoid disappointment.

“That’s a very conservative dividend growth rate, less than half of 11% of SCHD’s growth rate since inception. It’s even lower than the historical dividend growth rate for all companies of 6%. I think 5% share growth is likely though. Either way, it’s a good calculation and I think it’s a good “floor” calculation,” he wrote.

A Redditor pointed out that the 10% growth rate is wildly optimistic and suggested the poster considers the risk of depending on historical performance alone.

“This seems like a fun exercise, but past performance is not an indication nor guarantee of future performance. It seems like the exercise has ideal conditions too, and there’s no guarantee of that either. A 10% yearly growth in dividends is wildly optimistic. I added more below, but 10% yearly dividend growth over the next ten years would be something. Don’t think it will, but happy to be wrong,” he said.

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Market Conditions Can Affect SCHD Strategy

Several users discussed how broader market conditions and SCHD’s investment approach can affect its expected dividend growth. They also suggested the poster consider the share price appreciation alongside the dividend growth rate.

“A share of SCHD bought at $29.22 in January of 2013 would have paid $0.90 in that year. That same share would have paid $2.66 in 2023. That would be an increase of 195% in ten years. If you're looking for a source of income that will continue to grow over the years, this makes a lot of sense. On January 1, 2024, the share was worth $76.44. The fact that the price of that share went up 157% in that time period is also a decent incentive,” a comment reads.

“SCHD does not require its membership to grow their dividends by 10% in order to reach a fund growth rate of 10%. It often sells stocks yielding <2% and buys safe stocks yielding 3% or 4%. This cycle (the reconstitution in March each year) creates this effect. It should theoretically hold in bull and bear markets. I fully expect 10% dividend growth over long periods of time,” another Redditor shared.

One comment pointed out external factors, such as economic downturns, that can impact SCHD’s performance.

“My issue is entirely with the fact that SCHD has not been tested in a bear market, nor a recession or depression. If the pool of companies from which SCHD selects to comprise itself collectively suffers through a lengthy stagnation (or worse), the growth of the dividend in real dollars may stagnate. I am expressing skepticism that the real dollar amount will continue to increase at a rate of 10% per year,” the comment reads.

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