Calculate the power of compounding dividends with SCHD to build your passive income stream
SCHD's historical average return is approximately 10.47% (since inception)
Current SCHD yield as of 2025
SCHD's 5-year dividend growth average is 11.44%
Results based on monthly compounding
Past performance does not guarantee future results
| Year | Portfolio Value | Annual Dividends | Yield on Cost |
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The dividend snowball effect is a powerful wealth-building strategy where dividends are consistently reinvested to purchase additional shares, which in turn generate more dividends. Over time, this creates a compounding effect that can dramatically accelerate portfolio growth and income generation.
Similar to a snowball rolling downhill, your dividend income starts small but grows larger over time through the power of:
The most powerful aspect of the dividend snowball is that it continues to accelerate over time, potentially providing substantial passive income in retirement.
SCHD's historical dividend growth rate of ~11.44% means your dividend income grows substantially each year
Starting with a solid 3.91% yield provides a significant income base to reinvest
SCHD's focus on financially strong companies helps ensure dividend sustainability and growth
More of your money stays invested and compounds over time with the low 0.06% expense ratio
100% qualified dividends can provide tax advantages in taxable accounts
The longer your investment timeframe, the more powerful the compounding effect becomes. A 20+ year horizon allows for truly significant growth.
Automatically reinvesting all dividends through a DRIP program ensures no income leaks out of your compounding machine.
Adding new capital regularly significantly accelerates your snowball's growth, especially in the early years before compounding takes full effect.
"The dividend snowball grows exponentially as reinvested dividends generate their own dividends, creating a virtuous cycle of compound growth."
The Schwab U.S. Dividend Equity ETF (SCHD) is an exchange-traded fund that tracks the performance of the Dow Jones U.S. Dividend 100 Index. SCHD offers exposure to high-dividend yielding U.S. stocks with a strong record of consistently paying dividends.
SCHD is popular among dividend investors for its:
SCHD selects stocks based on:
The dividend snowball specifically focuses on the reinvestment of dividend income to accelerate portfolio growth. While all compounding involves growth on growth, the dividend snowball emphasizes how dividend payments, when reinvested, purchase more shares that generate even more dividends in a virtuous cycle.
SCHD combines several desirable characteristics: a meaningful starting yield (3.91%), strong historical dividend growth (~11.44% annually over 5 years), focus on financially strong companies, broad diversification across sectors, and a very low expense ratio (0.06%). This combination makes it particularly suitable for long-term dividend growth strategies.
The dividend growth rate has an enormous impact on long-term results. Even small differences in annual dividend growth rates can lead to dramatically different outcomes over decades. For example, a 5% dividend growth rate versus a 10% growth rate results in dividends doubling in 14.4 years versus just 7.2 years, respectively.
For most investors implementing a dividend snowball strategy, automatic reinvestment through a DRIP (Dividend Reinvestment Plan) is recommended. This ensures discipline, removes emotional decision-making, and maximizes the time your money is in the market. Advanced investors might occasionally choose manual reinvestment to rebalance their portfolio or buy undervalued positions.
Taxes can significantly impact your dividend snowball growth. Consider holding SCHD in tax-advantaged accounts like IRAs or 401(k)s where dividends can compound tax-free (Roth) or tax-deferred (Traditional). In taxable accounts, SCHD's qualified dividends are taxed at the lower qualified dividend tax rate rather than as ordinary income, which helps minimize the tax drag.