What Are Some Defensive Stocks?

What are some defensive stocks? After experiencing the pitfalls of a volatile market, many investors begin to seek safety for their investment portfolio.

One of the best ways investors can keep their portfolios level, even during bear markets, is to begin investing in defensive stocks. While defensive stocks do not give the returns that growth stocks can during bull markets, investing in a mix of growth and defensive stocks is a good way to keep investment portfolios stable regardless of the state of the markets and overall economy.

Here are some of the best defensive stocks to invest in this year.   

Understanding Defensive Stocks 

While mitigating risks is always valuable when it comes to investing, you might be wondering how exactly defensive stocks help to mitigate investment risks.

Well, a defensive stock is simply a stock that continues to provide its shareholders with stable earnings regardless of the state of the overall stock market through consistent dividend payments. 

In addition, defensive stocks exist because of the constant demand for their products. Most defensive stocks come from well-established companies that sell products along the lines of food, beverages, tobacco, healthcare, REITs, as well as a few others. Overall, some common characteristics of defensive stocks include: 

  • A defensive stock is a stock that provides stable earnings through consistent dividends. 
  • Most defensive stocks come from well-established companies that sell products that are continually in demand. 
  • Defensive stocks generally provide investors with steady long-term gains with low risk compared to other more volatile stock options. 

(Note: Defensive stocks should not be confused with Defense stocks. Defense stocks refer to the stocks of companies that produce or sell weapons, ammunition, and other types of security options.)

What Are the Pros and Cons of Defensive Stocks? 

Just like with any investment, there are pros and cons. The following are some key advantages and disadvantages associated with defensive stock options. 

Pros of Defensive Stocks 

  • During bear markets, defensive stocks tend to perform above the market. 
  • Defensive stocks help investors to preserve capital through lower-risk investments. 
  • Defensive stocks generally pay shareholders a consistent dividend payment which is extremely beneficial during market downturns. 

Cons of Defensive Stocks

  • During bull markets, defensive stocks tend to perform below the market. 
  • While defensive stocks help to protect investment portfolios from loss, they also tend to offer less potential for growth overall. 

Examples of Defensive Stocks 

Now that we know more about defensive stocks, along with their pros and cons, it’s time to take a deeper look at some examples of defensive stocks. The following are some of the most common examples of defensive stock categories. 

Utilities 

Water, gas, and electric utilities are always in demand, which makes utility stocks good defensive stocks to invest in. 

Some common utility stocks include:

Consumer Goods 

Consumer goods or consumer staples stocks like food, beverages, hygiene products, tobacco products, and household goods all remain in demand even during the economic downturn.

Therefore, stocks in companies that generate their income flow through common consumer goods serve as exceptional defensive stocks.  

Some common consumer staples stocks include:

Healthcare 

Healthcare is another industry that remains in high demand even during recessions and market downturns. With healthcare and health services continuously in high demand, healthcare stocks are also great defensive stocks to invest in.  

Some common healthcare stocks include:

Telecom

In the 21st century, telecom services will always remain in high demand even during economic downturns. 

Some common telecom stocks include: 

Apartment REITs

A REIT or real estate investment trust refers to a company that owns income-producing real estate. When it comes to defensive investing, apartment REITS serve as great defensive stocks as people will always be in need of housing and shelter even during economic recessions.

However, when looking for defensive REITs, it’s important to stay away from high-end apartments, industrial REITs, or office building REITs, as these REITs can be affected by the state of the economy.  

Some common apartment REITs include: 

What Are the Best Defensive Stocks to Buy? 

Now that we’ve learned all about the different types of defensive stocks, let’s take a look at some of the best defensive stocks to buy this year. Here are five top defensive stock buys for this year below. 

1. Walmart (NASDAQ:WMT)

  • Type of Defensive Stock: Consumer Staple
  • Market Value: $387 Billion
  • Dividend Yield: 1.6%

2. UnitedHealth Group (NASDAQ:UNH)

  • Type of Defensive Stock: Healthcare
  • Market Value: $432 Billion
  • Dividend Yield: 1.3%

3. CVS Health (NASDAQ:CVS)

  • Type of Defensive Stock: Healthcare
  • Market Value: $138 Billion
  • Dividend Yield: 2.1%

4. Costco Wholesale Corporation (NASDAQ:COST)

  • Type of Defensive Stock: Consumer Staples
  • Market Value: $234 Billion
  • Dividend Yield: 0.6%

5. Procter & Gamble (NASDAQ:PG)

  • Type of Defensive Stock: Consumer Staples
  • Market Value: $357 Billion
  • Dividend Yield: 2.37%

Ultimately, if you’re looking to safeguard your investment portfolio, investing a good portion of your portfolio into defensive stocks would be a great investment strategy to meet your investment goals. 

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.