For many investors, building a portfolio that will pay out enough in dividends to cover all of their major expenses in retirement is the ultimate goal. And since many companies that pay dividends seek to increase those payouts over time, you might even get modest pay bumps every year. The best part of having a portfolio of this type is that you might not have to sell shares to generate cash for your own living expenses, so you could wind up with a huge asset you can pass on to your heirs.

Building a solid dividend-focused portfolio that can pay out tens of thousands of dollars each year doesn't have to be complicated. Consistently investing a set amount into a simple ETF every month and reinvesting the dividends during your working years can result in a massive portfolio over time. Indeed, investing just $300 per month could eventually give you a portfolio paying out $42,000 per year in dividends.

The best dividend ETF you can buy

If you want to build your dividend portfolio around an ETF, fund selection is important. The Schwab U.S. Dividend Equity ETF (SCHD -0.21%) is arguably the best dividend ETF you can buy.

It tracks the Dow Jones U.S. Dividend 100 index, which selects 100 stocks issued by U.S. companies with strong track records of paying consistent dividends and better-than-average fundamentals. That differentiates it from other high-yield dividend ETFs, which might primarily select holdings based on yield without much regard to the fundamentals of the company behind the stock. A high yield isn't worth that much if the company paying it is about to cut its dividend. The Schwab U.S. Dividend Equity ETF is full of stocks with excellent potential to keep raising their dividends indefinitely.

Its 10 largest holdings (and their forward dividend yields) are:

• Cisco Systems (3.38%)
• Texas Instruments (2.62%)
• Chevron (4.16%)
• Home Depot (2.69%)
• Amgen (2.90%)
• Lockheed Martin (2.71%)
• Blackrock (2.59%)
• Verizon (6.47%)
• Coca-Cola (3.07%)
• Abbvie (3.74%)

As you can see, yield is far from the most important metric to determine which companies make it into the index and which ones don't. Still, most holdings have above-average yields and have fundamentals capable of supporting consistent dividend hikes.

On top of that, the fund's expense ratio -- the percentage of investors' holdings they must pay in annual fees -- is just 0.06%. In other words, investors will pay $6 for every $10,000 they have invested in the fund. That makes it an extremely low-cost way to invest in some of the best dividend stocks in the market. 

Building a $42,000 income stream on $300 per month

If you consistently invest $300 per month in the Schwab U.S. Dividend Equity ETF, you'll eventually find yourself with a significant holding. In fact, investing at that rate over the course of a 40-year career could set you up with a portfolio worth over $1 million and $42,000 in annual dividends.

While the ETF has had an average annualized total return of 12.92% since its inception, investors shouldn't expect such high returns to continue. The S&P 500 has historically produced an annualized total return of about 9.7%. Investors might expect somewhat slower growth from mature, dividend-paying companies, so an annual total return of about 8.5% is a better estimate of what investors in the Schwab U.S. Dividend Equity ETF can expect.

The trailing-12-month yield on the ETF is about 3.65%, but investors should expect some dividend growth, so the forward yield is closer to 3.8%. If we use those assumptions for steady returns and a $300 monthly contribution, here's what your hypothetical investment could look like over time.

There are some important caveats to this, however. First and foremost, the stock market doesn't produce steady returns. Stocks will go up in some months and years, and down in others. Your actual results will likely vary greatly from those in the chart above, even if the ETF does average an annual 8.5% total return over the long run.

Second, $42,000 might sound like a lot of money today, but it won't be worth nearly as much in 40 years due to inflation. The above returns are not adjusted for inflation, so take that into account when making investment plans.

Lastly, the ETF might not produce as high a yield in the future. The S&P 500's average dividend yield has decreased over time, and it could continue that trend for decades. In that case, investors might expect a larger portfolio value, but a declining yield could force you to sell some of your shares to fund your retirement.

Those challenges are not unique to investing in this ETF, let alone investing in stocks in general. It's important to remain flexible with your plans. But investors looking to build a massive stream of dividend income could start by consistently investing in the Schwab U.S. Dividend Equity ETF.