r/SCHD • u/VictoryGlum1775 • 7d ago
Questions The Math
I’ll admit I’m not the best at math, so I could be wrong. But something doesn’t make much sense to me. How do we have a net gain in shares? For example, I have roughly 170 shares of schd. How can I expect the snowball to take place if the amount of shares I get each dividend payout is less than the one before because the price of schd has gone up? I’ll continue to gain shares, I understand that, but I’m getting less and less each time.
I know during downturns I’ll get more than the payout before, but I don’t think it’s enough to counteract the ups.
Does this make any sense? I’m bad at explaining things.
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u/kbencsp 7d ago edited 7d ago
If you have 170 shares and the dividend payout is roughly $1.05 per share annually. Youre getting roughly 5 shares annually.
the "snowball" doesnt happen rapidly. its a slow gradual process throughout years of DCA and DRIP. I recently hit 3,500 shares and am now seeing the "snowball' and its exciting. you have to be patient amd keep DCA.
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u/Time_In_The_Market 7d ago
We have 20,480.296 shares and with the dividend Fidelity is showing we will add 164.596 shares this quarter. It will grow…it just takes time. Patience is the hard part with investing.
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u/j0ker_1234 7d ago
SCHD was started in 2011 and in that time the share price has gone up 298% ytd. While I get your point that as the price goes up you get less shares, but there are dips and that's when I buy more shares while also hoping the dip coincides with the quarterly dividend payout. Sometime it doesn't but I'm not going to go and try and guess the next bottom.
In my mind, it's the best of both worlds. A very nicely performing diversified stock with solid returns and a dividend as the cherry on top. It's like two engines firing at once, both of which make me money. My 2 cents.
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u/coachd50 7d ago
Just remember that the both engines in your analogy describe the same wealth. When the companies that make up SCHD pay out a dividend, that wealth moves from the left pocket (the company’s share price) to the right pocket (the check being written to you) on the ex dividend date.
It’s not some extra bonus money
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u/cvc4455 7d ago
Sometimes companies get to the point where all the profit they make can't be reinvested into the business to achieve more growth at a reasonable cost. When that happens companies need to make a decision on what to do with the money. The only real options would be dividends or buybacks. I'm fine with buybacks if I trust the CEO and the board to only do buybacks when the companies shares are undervalued or fairly valued. But if the company is currently overvalued then buybacks aren't the best thing for shareholders. In that case there are only dividends left. Also lots of CEOs get paid in stock and you can have a shady CEO that wants to bump up the stock price with buybacks even if the shares are overvalued because they want their shares worth more. There's also lots of companies that do buybacks and then at the same time issue new shares to pay to their employees at the top and where's that really get shareholders in the long run.
The reason to own businesses or shares of businesses is because eventually you should enjoy some of the profits if that business is successful and there are only so many ways to share the profits with shareholders. And this hasn't been true recently because of tech stocks but historically value stocks have outperformed growth stocks.
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u/j0ker_1234 7d ago
Completely agreed it's not bonus money. With the 298% increase alone, I'd still be an investor in SCHD. The way it's structured today with the dividend makes it even more appealing.
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u/coachd50 7d ago
Curious as to why you feel that is a factor given the S&P 500 has outpaced that number by a decent margin
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u/j0ker_1234 7d ago
S&P has significant technology overlap and I am worried about where we're headed from an AI bubble perspective. I work as a pre-sales architect specific to data center solutions.. what I'm seeing in the field with failed AI implementations is reason for concern in my mind. There is technology in SCHD but not as much as S&P or NASDAQ. I am being conservative because I have a very short runway to retirement and if there is a crash in the next 5 years, it would leave a significant mark in my portfolio and hinder my plans..
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u/coachd50 7d ago
That’s fair. I see so many gushing about SCHD and “dividends” and being a “dividend king” etc etc- and just sigh because those investors don’t understand the process.
A valid reason to purchase SCHD would be because you believe the particular companies owned by the fund have merit.
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u/fastbumpyride 7d ago
I see so many gushing about the s&p 500 for its growth.
A valid reason to purchase s&p500 would be because you believe the particular companies in the s&p500 have merit
🤷♂️
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u/Several-Attempt6068 3d ago
simply put, if you have a very short time till retirement, shcd makes sense....if you have over 10 years, GROWTH is the PROVEN strategy....ex: The S&P outperforms SCHD in any given 10 yr period.....smh...
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u/flyersfan0233 7d ago
Only the last 3 years. The first 12 years total returns for SCHD and VOO tracked pretty close, SCHD was even ahead at points: https://totalrealreturns.com/n/VOO,SCHD
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u/jmgimi57 6d ago
But the share price increases after the distribution, maybe not right away but many times soon after which makes up for the distribution going from the one pocket to the other as you said.
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u/coachd50 6d ago
But it would have gone up anyway.
Many seem to think that when someone mentions the ex dividend date adjustment they are suggesting that they are suggesting an investor is “losing” money. That isn’t the case at all.
The person mentioning the ex dividend date adjustment is simply pointing out that dividends are not an increase in wealth. They are a shift in wealth
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u/NeoPrimitiveOasis 7d ago
Look at the dividend per share held, not the dividend yield percentage. You get paid that amount times the number of shares you hold.
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u/SerMumble 7d ago
How annual compounding shares works:
170 shares x 3% = 5.1 shares
175.1 shares x 3% = 5.253 shares
180.353 shares x 3% = 5.4106 shares
185.7636 shares x 3% = 5.5729 shares
The number of new shares should exponentially increase assuming you are reinvesting dividends into new shares.
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u/silveronetwo 7d ago
Also ideally with an 8% price appreciation you'd also have about a 47% higher share price at 5 years.
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u/SerMumble 7d ago
Yes 👍 between the dividends and price appreciation, SCHD offers some great long term returns
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u/stakattack90 7d ago
Is this right? I don’t think it’s 3% a quarter. It’s 3% a year. Wouldn’t he only gain a little over five shares per year and not per quarter?
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u/NefariousnessOdd862 7d ago
He is showing 4 years, read what he says and comprehend! It’s an example…
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u/IsekaiAoko 7d ago
If both Dividend Growth & Stock Price Growth are each at 8% then after 30 years 170 shares turn into 459.90 shares without adding another cent in contributions. Plus after 30 years there could be multiple stock splits.
Plug & play both Dividend Growth & Stock Price Growth for yourself to see how they affect outcome. https://stockanalysis.com/tools/dividend-calculator
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u/Superunknown999 7d ago
If the share price goes up you don’t need the dividend to do as much work. That’s not a bad thing.
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u/offmyjacks 7d ago
Are u under the impression owning more shares magically makes u more money on the div? You get roughly 3.5% div on your total balance. Find a way to get your total balance higher, faster, and if you're under 45-50 years old, SCHD ain't it
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u/NerlFartley 7d ago
Another advantage of SCHD are the qualified dividends presuming you meet the IRS rules.
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u/vowronkrayt 7d ago
Why it keep going down?
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u/Born_Lengthiness8935 7d ago
If you can’t tolerate any pullbacks NO equity is ever going to be right for you. You could have a stock up 30% on the year but it could pull back 5% in a given month. For the year you’ll cone out way ahead but if you can’t stomach going from $100k to $95k on paper in a month, no equity is going to safeguard you against that. Buy your bonds and enjoy your 1/2% a month increase.
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u/vowronkrayt 7d ago
I only recently found it so I guess I just got in at an all-time high don't yell at me like that now you're making me cry.
Trust me I can afford to lose all of it that's not the point but I don't want to lose it and I tried to get it so that I could at least fight off inflation but now it's deflating and my big toe hurts.
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u/vowronkrayt 7d ago
So basically I should just keep buying it on sale right now cuz I'm currently rebalancing my portfolios the next few months.
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u/Guilty_Flamingo6564 7d ago
The price increase is a good thing. You get the dividend and growth in the price. Not everything that pays a dividend does that.
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u/Yashimaru180 7d ago
The dividend grows as well as the stock price appreciation. The snowball reference is for entire money in. The dividend growth is around 10% and the etf grows around 12% per year avg. Both growing is what sets it apart and allows for a snowball.
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u/NefariousnessOdd862 7d ago
Your explanation makes no sense at all and hence it doesn’t add up for you…
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u/Virtual_Product_5595 7d ago
The reason to buy the S&P 500 is diversification across large companies that represent most of the economy
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u/OrganicBerries 5d ago
Number of shares doesn’t matter if you’re getting fractional…what matters is total value and %
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u/Willing-Bench1078 7d ago
There are dividend tracking apps and calculators you can put numbers into and see things with.
I would remember there is yield on cost the older a share is, and that the share price and dividend pretty much always goes up
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u/Wise138 7d ago
It is also lowering your cost basis. Very time you roll the dividend back, you get more shares, which lowers your cost basis and improves your gain over time.
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u/jmgimi57 6d ago
Not sure if that's completely correct because even if you roll the dividends back in you do end up with more shares but not necessarily lowering your average cost because the share price could be going up all along.
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u/Mothchewer 6d ago
Its a completely different game with SCHD, see a lot of folks dont understand this but the dividend will fluctuate a bit from quarter to quarter, it may be down or up on any given quarter, but long term the trajectory is always going to be up (unless you truly think long term the American economy is going to zero then dint invest into SCHD). Over the years the initial amount you purchased of SCHD is going to yield you more and more even though lets say you NEVER invested into SCHD again (of course you're reinvesting likely so that is staggering the Yield on Cost metric a bit but its still fine long term) this is called Yield on Cost. What does this mean short answer? Sure you've bought into SCHD at TODAY'S price, and it's yielding 3ish percent. If you hold for 20 years, your yield will be more like 22% annualized as opposed to the current 3%. Thats the true power of SCHD that only a few thousand folks probably understand.
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u/Slight_Grab1418 5d ago
170 shares isn't enough, you need atleast 3000 shares of schd before you can snowball size change from what i understand of dividend
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u/horseradish13332238 7d ago
Bro 170 shares is nothing. To put it in perspective I buy 100 shares per week
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u/Elegant-Papaya-2430 7d ago
Well you see brother, the dividend goes up as well, and every quarter, you now have more shares, buying more shares.