President Donald Trump has sent shockwaves through the defense industry and financial markets with a series of conflicting policy announcements. The administration is drafting an executive order targeting major U.S. defense contractors—including Lockheed Martin, Northrop Grumman, RTX, Boeing, and General Dynamics—that would restrict dividends, stock buybacks, and executive compensation for firms that exceed budgets or miss deadlines on Pentagon weapons programs.
On Wednesday, Trump declared on Truth Social, "I will not permit dividends or stock buybacks for defense companies until such time as these problems are rectified." The move aims to force contractors to redirect cash from shareholder payouts into production capacity, following years of Pentagon frustration with cost overruns and delays. For example, Northrop Grumman's Sentinel missile program has ballooned to $140.9 billion, 81% over its original estimate, while Lockheed Martin's F-35 program has faced persistent issues.
The announcement triggered an immediate sell-off in defense stocks. Lockheed Martin fell 1.7%, and Northrop Grumman dropped 2% during regular trading on Wednesday, with the sector-wide rout reflecting investor fears over capital management restrictions. From 2021 to 2024, the top four Pentagon contractors spent roughly $89 billion on buybacks and dividends combined, an estimated $58 billion of which came from taxpayer-funded contracts.
However, the story took a dramatic turn during after-hours trading. Trump followed up with new posts proposing a $1.5 trillion defense budget for 2027, a major increase from the previously discussed $1 trillion. He stated this would fund a "Dream Military" and suggested tariff revenue would help pay for it.
This budget announcement triggered a swift reversal. Lockheed Martin's stock surged 7% in after-hours trading, erasing its day's losses. Northrop Grumman gained 4%, General Dynamics climbed 4.6%, RTX added 2%, and Huntington Ingalls increased 2%.
Legal experts question Trump's authority to unilaterally ban corporate actions like buybacks, noting executive orders cannot create new laws. The administration would likely tie restrictions to government contracts, threatening to withhold work unless firms comply—an approach expected to face litigation challenges from industry groups. Analysts note that while restrictions could hurt earnings per share support and dividend yields, the proposed massive budget increase could boost contractor revenues enough to offset any negative impacts.
