SCHD Versus SCHG - A Simple Summary of Dividends Versus Growth for Early Retirement

1. The Starting Point

We broke down a fairly simple scenario, starting here, in three parts, but in case you didn't want to peruse three articles, the summary is here.

The TLDR: In a qualified account where taxes can be deferred when re-balancing, growth will virtually always outperform dividend investing. However, the numbers are closer when talking about a non-qualified, taxable brokerage account.

We're going to use historical data for this summary because simulating future data is finicky at best, downright wrong at worst. In our first example, we chose SPY because it's a well known fund and extremely straightforward. While this won't be an apples to apples comparison, I want to use a fund that's outperformed the SP500 since inception: SCHG. To start, we'll take SCHD and SCHG from the earliest starting point we can compare the two, which would be October of 2011, all the way out to December 31st of 2024.

$1,000,000 into SCHD and DRIPing the whole way would give you $4,953,585, which equates to 175,659 shares. SCHD at that point in time is paying about $1 a share per year, so your income would be about $175,659.

$1,000,000 into SCHG would give you $8,665,567, which equates to 311,263 shares. However, we need to rebalance, so we're going to assume a few variables:

• A total of $7,665,567 in gain

• 0% long term capital gains on the first $94,051

• 15% long term capital gains on $94,051 – $583,750

• 20% long term capital gains on the rest of the 7.6m in gain

• 4.1% state tax (Colorado)

• 3.8% Net Investment Income Tax

Federal LTCG - 15% bracket	$73,454.85
Federal LTCG - 20% bracket	$1,416,363.40
State Tax (CO - 4.1%)	$314,288.25
NIIT (3.8%)	$291,292.55
Total Taxes	$2,095,398.05

We're left with $6,570,169 to work with.

Put that into SCHD in 1/1/2025 (bummer of a time to invest but oh well) = $262,806 of annual income. If you're retiring at age 59 1/2 and can re-balance in an IRA or 401k, the numbers look even better.

2. The Results

SCHD and Chill: $175,659 of income SCHG and re-balance: $262,806 of income

As with anything, past performance is not indicative of future results, and these numbers could look different. Tax rates could change, value could overcome growth, you could re-balance 5 years before retirement instead, etc. etc. We also didn't include the tax drag on dividends from SCHD along the way, or re-allocation in a tax efficient manner over a few years after retirement, so it really just appears to be a clear cut case in SCHG's favor.

Dividends can be an incredibly rewarding way to invest, and can accomplish more than just helping you retire. Your goal could be to create supplemental income for your family, reduce your hours, spend more time with the family, and so on. But in a pure face off with growth versus dividends, it appears growth has the upper hand.

But who knows, growth could be in for a cycle in which value outperforms. However, as I said in my last post, whatever you do, start doing it now.