Defensive stocks are stocks that remain relatively stable and pay dividends during periods of economic decline.

• A. False
• B. True
• C. Not sure
• D. Always grow rapidly

Answer: (B)

Defensive stocks are defined by stability in tough times and the ability to pay dividends even when the economy slows. These companies sell essentials—think food, utilities, healthcare—so their earnings are less tied to the ups and downs of the business cycle. Because their cash flows remain relatively predictable, their stock prices don’t swing as wildly in a downturn, and they can continue to distribute dividends, providing income to investors when other parts of the market are weak. That combination of steadier performance and ongoing dividends is why the statement is true. They aren’t expected to grow rapidly during economic declines; growth tends to slow overall in recessions, which is why the notion of rapid growth doesn’t fit defensive stocks.