This huge dividend stock just announced a big stock split and a massive dividend increase

Investing in the stock market has been the surest way to build wealth over time. From year to year, however, there are many ups and downs. And you don’t even have to look that far back to see proof of that. In the last four years alone, markets have risen, then fallen, then risen again.

This is why investors need a long-term perspective when buying stocks. The buy-and-hold investment philosophy helps smooth out all these bumps along the way.

However, you can increase your returns by investing in dividend stocks. Stocks that pay a dividend and then grow the payout over time can dramatically improve your results. Data from The Hartford Funds shows that since 1960, reinvested dividends are responsible for 85% of the total cumulative return of S&P 500 index.

While there are plenty of dividend stocks to choose from, buying an exchange-traded fund (ETF) that holds all the best dividend stocks may be the best way to go. Probably the best vehicle to do this is Schwab US Dividend Equity ETF (NYSEARCA:SCHD), with over 100 dividend paying stocks and a yield of 3.5%.

Key points about this article:

• Investing in dividend growth stocks is one of the safest ways to build wealth for your retirement portfolio, as dividends account for 85% of S&P 500its total profitability.
• The Schwab US Dividend Equity ETF (SCHD) is one of the best vehicles for implementing this strategy because it has a long history of double-digit percentage payout growth.
• Sit back and let dividends do the hard work for a simple and steady path to serious wealth creation over time. Grab your free copy of “2 Legendary High-Yield Dividend Stocks” now.

A growing history of investor rewards

Arrows pointing to ETFs

The Schwab ETF was created 13 years ago with the goal of a total yield tracking of Dow Jones US Dividend 100 Index. Since inception, SCHD has consistently increased its dividend payout and has a total return of 402%.

With around 100 stocks in the portfolio, no one company is a huge position, but the biggest six make up a quarter of the total, or 4% or more.

Home Depot (NYSE:HD): 4.31%

Verizon (NYSE:VZ): 4.25%

Cisco Systems (NASDAQ:CSCO): 4.2%

BlackRock (NYSE:BLK): 4.19%

Pfizer (NYSE:PFE): 4.04%

Chevron (NYSE:CVX): 4.01%

These are all top dividend-paying stocks with a long history of rewarding shareholders by increasing their payouts. The Schwab ETF reflects this growth. SCHD has increased its payout by nearly 11% annually on average over the past decade, although last year saw the smallest increase at just 3.8%.

Many worried that the good times were over for ETFs, but they may have turned things around. The Schwab US Dividend Equity ETF just announced that it will increase its dividend by 15.3% to $0.7545 per share, which follows an even bigger second-quarter increase of more than 23%.

This means that, year to date, SCHD has increased its payout by 14.3%, indicating that it is returning to its historical trend.

A powerful combination

Person holding a holographic image of a rising stock chart

Perhaps more interesting than the big dividend increase is that the ETF just announced a three-for-one stock split that will take place after the market closes on October 10.

Now we all know that stock split itself doesn’t make sense. Nothing fundamental about the business of a company (or in this case the ETF) changes. You only get 12 slices of pie instead of six. And each of those slices is now worth less based on the split ratio.

In SCHD’s case, the stock, which trades at just under $84 per share, will now be worth about $28 per stub based on the three-to-one ratio.

So why does it matter? Stock splits, at least when it comes to companies, often tend to be bullish signals about the future. Management believes its stock is too expensive and wants to make it more accessible to more investors to participate in the growth ahead. For ETFs, it’s a little different.

First, many might think that a stock trading at $84 per share isn’t all that expensive to begin with. Nvidia (NASDAQ:NVDA) was trading at over $1,000 per share before it split 10-to-1, while Broadcom (NASDAQ:AVGO) was about $1,550 a share before its 10-for-1 split. So why is SCHD splitting its stock?

Schwab likes to keep its ETFs affordable for small retail investors. The asset manager has 31 ETFs they manage and 20 of them just announced a stock split, including its US dividend ETF. It’s not often that a Schwab ETF stays close to $100 per share for very long. The lower price may attract more investors to buy.

The package key

When building your retirement portfolio, an exchange-traded fund like the Schwab US Dividend Equity ETF provides instant diversification across a broad cross-section of the market. It is a low-cost fund that tracks quality companies that pay sustainable dividends.

With its history of growing payouts by double-digit percentages, it can serve as an essential part of a diversified portfolio that can fully exploit your long-term returns.

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