3 Stocks to Battle a Double-Dip Recession

A few years ago, NYU Professor Nouriel Roubini predicted the subprime crisis that nearly brought down our entire financial system. It would certainly seem wise to heed this man's advice -- especially since he has recently become more outspoken about the possibility of a double-dip recession.

In plain English
In a recent article, Roubini explains that if investors think the worst is over, we're wrong (ouch!). He provides two main reasons why he believes we will experience a double-dip recession:

1. Labor markets: Unemployment figures only account for people without jobs who are looking for work. When you account for discouraged workers and the partially employed, the rate is close to a whopping 17%. And if we look at recessions of the past, particularly the 1990-1991 and 2001 downturns, job losses continued for more than a year and a half after the "recovery" began. In short, jobs aren't coming back for at least a year and a half if not longer, and that will have a devastating impact on any upturn. Lengthier unemployment means our economy will experience a prolonged lag in private consumption, which especially hurts high-end consumer-facing companies like Starbucks (NASDAQ:SBUX).

2. Federal deficit: Because countries like the U.S. have had to spend boatloads of cash to bail out our economy, we're now deeper in the hole than we have been in years. With depressed labor markets, the easiest way to kick-start our economy is a fiscal injection -- more employment programs, infrastructure work, and so forth. But with declining tax revenues and looming entitlement programs, the U.S. isn't exactly in a position to spend our way out of this recession. As Roubini says, "Policy makers are damned if they do and damned if they don't."

Considering these two points, the short-term outlook certainly looks bleak. According to Roubini, "the weakness in labor markets and the sharp fall in income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession."

It gets worse
Martin Feldstein, a Harvard professor and former head of the National Bureau of Economic Research, recently said, "There is a real danger this is going to be a double dip and that after six months or so we're going to have some more bad news." Feldstein believes the economy is likely to contract again in the latter part of the fourth quarter as inventories finish rebuilding and the fiscal stimulus wears off.

As if that wasn't bad enough, President Obama recently voiced his own concern that too much government spending could break a very fragile economic recovery. Specifically, he said that investors could lose confidence in the U.S. economy, which could ultimately lead to "a double-dip recession."

Uh-oh. When the president of the United States, known for his "Yes We Can!" slogan, starts warning about a second contraction, I start to get a bit worried myself.

Make the right move
It seems there's a good chance that at some point, we're going to have another contraction. If so, you're probably also a bit scared about losing some of those returns you've earned since March. If you've benefited from impressive run-ups in companies like Human Genome Sciences (NASDAQ:HGSI) or Vanda Pharmaceuticals (NASDAQ:VNDA), my advice isn't to try to time the market or jump ship on stocks just because a recession may be near. It's one thing to ditch a company because you speculated on it in the first place, but if you believe in a company over the long run, making a hasty decision is definitely not the right choice.

You could invest in high-growth companies, because they've demonstrated an ability to flourish during recessions. Companies like First Solar (NASDAQ:FSLR) can be disruptors in their industries, but they also carry significant risk. After finally getting some of the cash back that you lost after last year's collapse, you may not be quick to pull the trigger on risky stocks.

Instead, a more prudent move would be to invest in companies that have room for growth, but also pay you to hold them. In fact, Wharton Professor Jeremy Siegel says that over the next two years, he sees "a bright future for dividend-paying stocks."

Double down for a double dip
It's not exactly easy to find the best dividend-paying stocks these days, because hundreds of companies have slashed or suspended their dividends over the past year. Our team at Motley Fool Income Investor looks for companies that have good yields, low payout ratios, and the ability to pay off their debt, so they can avoid cutting their dividends in the future.

For instance, retailer TJX Companies has been paying dividends since 1980, has increased its payment for 10 consecutive years, and has a very practical 18% payout ratio. That's the kind of stock you want to look for. Below, I've identified three stocks that have similar characteristics:

Data from Capital IQ, a division of Standard & Poor's.

These companies not only pay great dividends, but because they have plenty of earnings to pay their dividend and cash to pay off their debt, you can also be reasonably sure they won't be cutting payments any time soon.

If you're interested in purchasing high-quality stocks with great payments and room for growth, check out our Income Investor newsletter. Get all of our analysts' past and present recommendations, as well as the top six stocks they think you should buy right now. We're offering a free 30-day trial -- click here for more information.

Jordan DiPietro owns shares of First Solar, which is a Rule Breakers recommendation. Starbucks is a Stock Advisor recommendation, and the Fool used to own shares of it. 3M is an Inside Value selection. The Fool has a disclosure policy.