Defense Sector on Edge as Trump Targets Buybacks, Production Delays
Former president to meet with top defense CEOs, threatening an executive order to curb shareholder payouts in favor of faster weapons production.
The U.S. aerospace and defense sector is bracing for a high-stakes confrontation, as former President Donald Trump has summoned chief executives for a meeting to demand a strategic shift away from shareholder returns and toward ramping up weapons production.
According to initial reports from The Wall Street Journal and Bloomberg, Trump will directly press leaders of the nation's largest defense firms to curtail spending on stock buybacks, dividends, and executive compensation. Instead, he will insist on greater investment in accelerating the development and manufacturing of military hardware. The meeting is reportedly scheduled for the week of December 22nd.
The move signals a potential, significant intervention into the capital allocation strategies of an industry that has long favored shareholder returns. The administration is reportedly preparing an executive order that could claw back or limit payouts for contractors whose projects are over-budget or behind schedule. Such a move would represent an extraordinary level of government influence over corporate policy in the military-industrial complex.
This pressure comes as the defense industrial base faces scrutiny over its ability to quickly produce munitions and platforms amid rising geopolitical tensions. Trump has been publicly critical, arguing that major firms are failing to expand capacity. "We need ships, we need airplanes, we need everything now," one report from MarketScreener stated, encapsulating the administration's push for urgency.
Major defense contractors, which rely on government contracts for the bulk of their revenue, are now in the spotlight. This includes giants like Lockheed Martin (NYSE: LMT), with a market capitalization of over $110 billion, and RTX Corp. (NYSE: RTX), valued at over $244 billion. These companies have historically been reliable performers for investors, partly through consistent dividend payments and share repurchase programs. For instance, Lockheed Martin currently has a dividend yield of approximately 2.8%.
According to Seeking Alpha, the proposed executive order would also mandate that executive compensation be more closely tied to performance on specific weapons systems delivery. This directly targets concerns that executive bonuses are inflated by buybacks that boost earnings per share without corresponding long-term investment.
The market's initial reaction to the news has been muted and mixed, suggesting investors are in a wait-and-see mode ahead of the pivotal meeting. While some stocks saw minor fluctuations in after-hours trading, the sector remains stable as it awaits clarity on whether this political pressure will translate into binding policy.
The primary issue is the fundamental tension between returning capital to shareholders and making the long-term, lower-margin investments required to expand factory floors and modernize production lines. For decades, buybacks have been a preferred tool for capital return in the sector. A forced pivot could alter the investment thesis for these stocks, which are held in pension funds and retail portfolios alike. Investors and corporate boards at Northrop Grumman (NYSE: NOC), General Dynamics, and others will be watching closely to see if the foundational relationship between the Pentagon and its largest suppliers is about to be reshaped.