Sales and profits of defensive stock companies are less affected by business cycles and economic conditions。As a result, when real GDP falls, their profits are slightly less than those of other companies.。On the other hand, though, even if the economy grows, it doesn't appear that the earnings offered by such companies will increase significantly。

Defensive stock companies are those whose products are sought after by the public, so market demand for these products remains stable throughout the business cycle。

The definition and operation principle of defensive stock

Defensive stocks pay dividends in sustained and predictable amounts regardless of how economic problems affect the overall stock market。Such stocks tend to be more stable at different stages of the business cycle due to continued demand for their products。

Since defensive stocks have strong current and operational capabilities under uncertain conditions, they can undoubtedly reduce the risk of recession。Companies with defensive stocks also pay regular dividends, which can dampen share prices in a downward market trend。

How to Find the Best Defensive Stocks？

1.Performance Record

The first thing to consider is the company's track record.。Defensive stock companies usually have a long history and are large。In addition, the company is decades old and has a market capitalization of billions of dollars。

2.continuous dividend

One of the following factors to consider is the long-term continuous payment of dividends, choosing a company that will continue to pay dividends for at least ten years。

3.Low volatility

A coefficient that measures the movement of a stock relative to the stock market as a whole, with low volatility indicating that the company's stock is not affected by market volatility。

Best Defensive Stocks in Malaysia

Nestle Malaysia Berhad

Nestle is one of the best and oldest companies in Malaysia and continues to pay dividends, which is worthy of investors' attention.。Nestle, which has a long track record, is one of the best defensive stocks in Malaysia with a share price of 133 ringgit and a market cap of 310.200 million ringgit。

Tenaga Nasional Berhad

Tenaga Nasional Berhad was one of 13 Malaysian companies in the Forbes Global 2000 in 2018, with a strong track record making it one of Malaysia's best stocks to buy.。Tenaga is Malaysia's only electric utility with a value of 990..Assets of 300 million Malaysian ringgit。

Petronas Dagangan Berhad

Petronas Dagangan Berhad is a major player in downstream petroleum products in Malaysia with a market cap of 336.0 billion Malaysian ringgit, share price 16.98 ringgit。

Dutch Lady Milk Industries Berhad

Founded in 1960, Dutch Lady Milk Industries Berhad is a well-known milk and dairy retailer in Malaysia.。Dutch Lady is one of the most highly valued among defensive stocks, with total revenue of 2.906.6 billion ringgit。

Why defensive stocks are good for portfolios？

Investing in defensive stocks has proven to be good for the portfolio。This is because defensive stocks tend to deliver substantial long-term returns while being less risky than other stocks。In addition, the Sharpe ratio (Sharpe ratio) of such stocks is higher than that of the entire stock market.。

Objectively, such stocks may be a better investment option than other stocks。

The advantages of defensive stocks

Stocks are good for both long-term and short-term investments。

If you are a short-term investor buying and selling stocks, you should expect a capital gain from the difference between the ask price and the bid price。

If you are a long-term investor in stocks (such as defensive stocks), you will buy or save money to buy stocks more regularly。As a result, investors receive two benefits:

1.Capital Gains

Capital gain is the profit generated by the difference between the selling price and the buying price of a stock, which is calculated based on the value of the stock deposited。

2.Dividends

Dividends are profits from the distribution of the issuer's earnings。Additional income if investors buy shares of companies with strong earnings performance。

Disadvantages of defensive stocks

High profits are always accompanied by high risks and vice versa。There are several risks you should understand before deciding on the type of investment。

1.Liquidation Risk

This risk exists if the company is declared bankrupt or dissolved by the court。In this case, after the company has fulfilled its obligations to the other party, the shareholder will be the last party to obtain its rights。

If we do not rule out the possibility that once the company has the remaining assets, the shareholders will get nothing.。

2.No dividends

This risk exists if the issuer uses the profits to increase working capital or expand its business。Therefore, profits are not distributed to shareholders in the form of dividends。

3.Loss of capital by investors

This risk arises when the bid price of a stock exceeds the ask price, resulting in a loss of capital value for the owner of the stock。

4.Stock removed from Exchange

This risk arises when it is found that there are several reasons for a stock to be removed from the securities market。As a result, the stock can no longer be traded, causing huge losses to shareholders。

Malaysian Defensive Stock Broker

Malaysia's booming economy has the world's best defensive stockbroker。If you are looking for a safe place to invest your funds, here are the top four Malaysian stockbrokers you should consider:

Mercury Securities
Hong Leong Investment Bank
Dahua UTrade
PM Securities Sdn Bhd

Conclusion

A defensive stock is one in which investors have the opportunity to make a long-term profit under uncertain conditions due to its strong movements and operations。Defensive stocks can undoubtedly reduce the risk of economic downturn。Defensive stock companies also regularly pay dividends, which can dampen share prices in a market downtrend。

If you have considered defensive stocks as a way to reduce portfolio risk, then stay focused on growth stocks and remember to choose those that are part of the broader market。Finally, before investing in stocks, evaluate your personal financial situation to determine if you have enough money to invest or if you need to improve your financial situation。

FAQs

What is a good defensive stock?？

Good defensive stocks are those that pay dividends consistently and predictably, regardless of how economic problems affect the stock market.。

Which Sectors Are Defensive？

Water, gas, and electric utilities are defensive stocks because people need them at all stages of the business cycle。

How to tell if a stock is aggressive or defensive？

Aggressive portfolios take huge risks and seek strong returns, while defensive portfolios focus on key consumer goods that are not affected by the recession.。

What is a good defensive investment?？

Bond Reverse Fund Dividend Stocks Commodities