Jenny Harrington explains why dividend investing is a strategy that keeps your portfolio stable no matter what’s going on in the economy.

It’s no surprise that the markets have been rocky lately. At HerMoney, we don’t believe in panic selling, and we hope you don’t either. But if you’ve found yourself nervously checking your portfolio more than usual, we get it. And with some economists saying we could already be in a recession right now, you might be asking: Is it time to play it safe with my money? Should I be considering dividend investing right now? 

This week on the HerMoney Podcast, Jean Chatzky sat down with expert investor Jenny Van Leeuwen Harrington to talk about her new book, Dividend Investing: Dependable Income to Navigate All Market Environments. She explains how building a portfolio of dividend income stocks can offer dependable, consistent income and, most importantly, stability in an uncertain economy.

What Is Dividend Investing? 

Jean Chatzky: Can you just give us a basic definition of dividend investing?

Jenny Van Leeuwen Harrington: Yes, but first, I need to bifurcate it. So, there’s dividend growth investing, and then there’s dividend income investing. Dividend growth investing are companies like Microsoft and Apple who pay a dividend, but it’s very, very tiny. So, if you were to buy a share of those stocks, your dividend yield would be 0.01 or 0.02%.

Then there’s dividend income investing, and that’s what I focus on. Dividend income investing is where you can create a portfolio, and the dividend income that the stocks pay out creates a substantial income stream. So if you invest in a stock that has a price of a hundred dollars and it has a 5% dividend yield, then it’s giving you $5 a year of income. And the dividend is consistent, so the share price can go up, down, and sideways, but the dividend is consistent, particularly in US stocks.

How Do I Know If Dividend Investing Is Right For Me? 

Jean Chatzky: There tend to be different kinds of investors. There are growth investors, value investors, and dividend income investors. How do you know what you are? What is the right type of investment at each point in your life?

Jenny Van Leeuwen Harrington: It’s interesting because a huge amount of my clients aren’t actually the kind of people who need dividends or need dividend income, but it makes them feel good. They are risk-averse humans, and they don’t care that they missed out on a plus 26% return last year in the stock market. That rollercoaster makes them queasy. What makes them feel good is seeing cash income deposited into their brokerage account on a monthly basis. Collectively, you get a little bit of income each month from lots of different companies, and that makes you feel good.

Retirement Income Replacement Strategies

Jean Chatzky: The other time a lot of people start thinking about dividend investing is when we’re trying to build income in retirement. Can you talk about that use case?

Jenny Van Leeuwen Harrington: That is the most common use case. And some people want to set that up years in advance so that they can see the income deposited into their account 3, 5, or even 10 years before they retire. The conversation frequently goes, “Right now, I’m 62 years old. I expect to retire by 70. I’m making $125,000 a year. If I’m going to get $50,000 a year from Social Security, how much do I need to get the other $70,000 by the time I get there?” So when you start to think about inflation, you can say I’ll have income, and it’ll also grow to keep up with inflation once I do retire. 

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