What is: Defensive Stock

What is Defensive Stock

Defensive stocks are a type of stock that tends to remain stable and even perform well during economic downturns or periods of market volatility. These stocks are typically found in industries that are less affected by changes in the economy, such as utilities, healthcare, and consumer staples.

Investors often turn to defensive stocks as a way to protect their portfolios during times of uncertainty. These stocks are seen as a safe haven because they are less likely to experience significant price fluctuations compared to more cyclical stocks.

One key characteristic of defensive stocks is their consistent dividend payments. Companies that fall into this category often have a history of paying dividends regularly, providing investors with a steady income stream regardless of market conditions.

Another important aspect of defensive stocks is their strong balance sheets. These companies tend to have low levels of debt and ample cash reserves, which can help them weather economic downturns more effectively than companies with higher levels of leverage.

In addition, defensive stocks are known for their stable earnings and revenue growth. These companies typically have a proven track record of generating consistent profits, which can provide investors with a sense of security during turbulent times in the market.

Overall, defensive stocks are considered a reliable option for investors looking to protect their portfolios from market volatility. By investing in companies with strong fundamentals and stable performance, investors can help mitigate risk and preserve capital during challenging economic conditions.