"How do you invest in a slow-growth environment?" That's what Michelle Caruso-Cabrera of CNBC asked me on Power Lunch yesterday. I recommended a barbell approach focused on cash and equities.
I told her I would avoid bonds because the yields are much too low. I know that cash pays nothing, but why would I settle for almost nothing from bonds, tie my money up for several years, and take the risk that interest rates suddenly rise? Instead, I'd rather keep cash on hand to take advantage of any major sell-offs in equities when they occur.
As for the other end of the barbell, I would focus on non-cyclical companies that pay dividends and show some evidence of dividend growth. That way, I can earn a yield equivalent to bonds and be able to participate in capital appreciation. As I explain in my most recent Forbes column, dividend paying stocks outperform non-dividend paying stocks over the long term. A new study shows that the difference in performance is even greater during economic recessions and down markets.
One company that fits this mold is Hormel Foods (HRL), the maker of SPAM. It's a stock I recommended in my newsletter, Forbes Special Situation Survey last October. The stock currently yields 2% and has a long history of dividend increases. I'd rather hold a stock like HRL than the 10-year Treasury note.