Want Decades of Passive Income? Buy This Index Fund in 2026 and Hold It Forever.

There are many kinds of passive income, such as interest from certificates of deposit or bonds, or rent payments from tenants, or monthly checks from annuities. My personal favorite kind of passive income is dividend income from dividend-paying stocks or dividend-focused exchange-traded funds (ETFs).

Why dividends? Well, dividend-paying stocks offer income without your having to sell any shares, and over time, the value of each share tends to increase -- as does the size of the dividend. It's win-win-win!

Image source: Getty Images.

Here's a look at one of my favorite dividend-focused exchange-traded funds (ETFs) -- the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD).

Meet the Schwab U.S. Dividend Equity ETF

The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which is "designed to measure the performance of high-dividend-yielding stocks in the U.S. with a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios."

That index holds about 100 stocks with track records of paying dividends for at least 10 years -- and which also seem to be tied to high-quality companies. Here's how the Schwab ETF has performed in recent years:

Data source: Morningstar.com, as of Jan. 16, 2026.
*as of inception date, Oct. 20, 2011

That's pretty impressive. I included numbers for Vanguard's vaunted S&P 500 index fund, and the Schwab ETF compares rather nicely -- though, admittedly, over the past 12 months (as of Jan. 16), the Schwab ETF gained just 7.9%, versus 18.3% for the S&P 500 ETF.

One key reason for that difference is that standard S&P 500 index funds are, like the index, quite top-heavy with tech stocks. Where the S&P 500 ETF recently had fully 35% of its assets in tech stocks, the Schwab ETF had just 9%.

The S&P 500's concentration has served it very well -- until it doesn't. Many people will not be surprised to see the overall stock market pull back and take a breather in 2026, and if that happens, tech stocks and growth stocks (which have a lot of overlap) often fall harder than the overall market. At such a time, this Schwab dividend ETF is likely to fare better.

Reasons to love the Schwab U.S. Dividend Equity ETF

Here are some more reasons to consider the Schwab U.S. Dividend Equity ETF:

• It sports a fairly fat dividend yield, recently at 3.8%. That's greater than many dividend-focused ETFs, and it's not fat at the expense of growth. This ETF offers a compelling mix of both income and growth.
• The ETF features a very low expense ratio (annual fee) of just 0.06%, which means that each year, you'll have to fork over less than a dollar -- just $0.60 -- for each $1,000 you have invested in the fund.

Take a peek at the ETF's recent top holdings, which recently made up about 41% of the fund's value:

Data source: Morningstar.com, as of Jan. 16, 2026.

Any long-term investor seeking income should give this solid ETF some serious consideration. Know that there are other good ETFs out there, too -- including some promising growth-oriented ETFs. You might mix and match, to suit your risk tolerance and investing goals.

Selena Maranjian has positions in Altria Group, Bristol Myers Squibb, and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Bristol Myers Squibb, Chevron, Home Depot, Merck, Texas Instruments, and Vanguard S&P 500 ETF. The Motley Fool recommends ConocoPhillips and Lockheed Martin. The Motley Fool has a disclosure policy.