Defensive stocks are described as which of the following?

• A. Highly volatile
• B. Remain stable and pay dividends during downturns
• C. High growth but no dividends
• D. Low liquidity

Answer: (B)

Defensive stocks are those that tend to hold up when the economy slows because they come from industries with steady, inelastic demand, like consumer staples, utilities, and healthcare. Their earnings are less sensitive to downturns, which allows them to maintain or even grow their dividend payments while other sectors struggle. That ability to deliver reliable income and produce relatively stable cash flows makes their prices less volatile in bad times, providing downside protection for investors. So the description that they remain stable and pay dividends during downturns is the best fit.

They aren’t typically characterized by high volatility, since the defining trait is steadier performance in rough economic periods. They aren’t chosen for high growth with no dividends, as many defensive stocks do pay dividends. And liquidity varies across stocks and isn’t the defining feature of defensive stocks.