The first thing we did on our return to the world of markets and money this morning was to read “bond king” Bill Gross’s investment outlook for July. We consider this compulsory reading. Gross, the managing director of PIMCO, is one of the smartest underground investors out there. And his no BS approach to the financial markets is always refreshing.

Notes faithful will recall that last month Gross predicted that the economy is heading for what he calls the “new normal” – “higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2% as opposed to 3½%.” And we touched again on Gross’s advice for investors in our Friday issue.

The bottom line for Gross is that there can be no recovery to the “old normal” when one in ten Americans is officially unemployed and consumer spending is in the bin. (Gross points out that the official 10% jobless rate fails to represent the surge in “underutilized” workers – those who have been forced into part-time work and who have stopped looking for further employment. There are currently a staggering 30 million unemployed and “underutilized” workers in America.)

Even scarier than the huge glut of out-of-work Americans is the massive rebalancing of power that is going on right under our noses from the investor class to the proletariat. Gross doesn’t see an investor friendly future. Instead, he sees tax hikes, continuing deficits and retarded growth.

For Gross, the only sane response to this “new normal” is to stick to low-risk assets such as bonds and stable dividend-paying stocks.

What this all means to you as an investor is near obvious as well. Unsurprisingly, what still can be modeled is the direct correlation of real profit growth to real economic growth, assuming a constant division of the “pie” between profits, labor and government. If long-term economic growth declines by 1½% then profit growth will as well. This, after settling at perhaps half of absolute peak profit levels of 2007, because of the rise of savings rates from 0 to 8% or higher. But to add to the woes of the investor class, one has only to observe that their share of the pie is shrinking. What does the General Motors example tell us all about the rebalancing of power between the investor class and the proletariat? What do trillion-dollar deficits and the recent reinitiating of PAYGO government programs tell you about the future of corporate tax rates? They’re headed higher. Do you really think that a national health care program can be paid for with cost-cutting as opposed to tax hikes at insurance companies and benefit-paying corporations throughout all sectors of the American economy? The new normal will not be investor-friendly unless your forecasting dial is turned to “Pollyanna” or your intelligence quotient is significantly less than 100.

Investors who stuffed themselves on a constant diet of asset appreciation for the past quarter-century will now be enclosed in a cage featuring government-mandated, consumer-oriented fasting. “Non Appétit,” not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the U.S. Because this is so, short-term policy rates will be kept low for longer than cyclical norms, and the outlook for risk assets – stocks, high yield bonds, and commercial and residential real estate will involve just that – risk. Investors should stress secure income offered by bonds and stable dividend-paying equities. Consumer Cuisinart consumption is a relic of the past.

Countless studies demonstrate that dividend-paying stocks outperform non-payers by a wide margin, according to underground investor Louis Basenesse, senior analyst at The Oxford Club.

From 1972 to 2006 dividend-paying stocks returned an average of 10% annually versus 4% for non-dividend payers, according to Ned Davis Research. Going back to 1926, other studies confirm almost half of the S&P 500’s return was due to the dividends paid by the companies in the index.

To help you identify what exactly “stable dividend-paying equities” are Louis has a handy six-step screening process:

1. Simple business. The fewer the moving parts the fewer things that can go wrong and sap cash intended for dividend payments. Focus on companies doing one or two things that you can understand, as opposed to massive corporations with dozens of operating segments.

2. Steady demand. Given the Great Recession, the first thing we need to verify is demand for a company’s products. After all, a company needs a steady stream of cash coming in to afford to pay it out to shareholders. Stick to industries or sectors with recession-proof or recession-resistant demand (food, alcohol, tobacco, health care, etc.).

3. High cash balance. Cash IS king, especially when it comes to maintaining a dividend. Consider it insurance against any unexpected slowdowns. At a minimum, insist on enough cash to cover one quarter’s worth of dividends.

4. Minimal need for credit. Securing credit in this market is extremely difficult. Accordingly, I focus on companies that do not need to raise significant amounts of capital. Remember, too, when interest rates rise, so do interest payments for companies that rely on a significant amount of debt. So it’s also important to focus on companies with reasonable or low debt balances. This insures interest payments won’t sap money intended for us.

5. Cash flow positive. If a company’s not generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices are not sustainable over the long term. Eventually, the dividend will be cut.

6. Earnings buffer. Insist on a dividend payout ratio (annual dividends/annual net income) of 80% or less. A company paying out 100% of earnings has no wiggle room in the event of a slowdown. If business suffers, so will the dividend.

If you want to get in to some stable dividend payers right away, Louis recommends considering Lorillard (NYSE:LO) and Windstream Corp. (NYSE:WIN). These are attractive at current prices.