Defense Stocks Fall as Trump Demands End to Shareholder Payouts
Call for contractors like Lockheed Martin and RTX to halt buybacks and dividends introduces significant political risk to the sector's investment appeal.
Shares of major U.S. defense contractors, including Lockheed Martin (LMT) and RTX Corp (RTX), fell in early trading Tuesday following a public demand from former President Donald Trump that they immediately cease all stock buybacks and dividend payments.
The unexpected statement, first reported by Bloomberg, injects a significant new layer of political uncertainty into a sector heavily reliant on government contracts and stable capital return programs. The call targets the financial policies of the Pentagon's largest suppliers, including Lockheed Martin, RTX, General Dynamics (GD), and Northrop Grumman (NOC), which together represent over half a trillion dollars in market capitalization.
For investors, the threat strikes at the core of the sector's appeal. These mature industrial companies are prized for their steady, reliable dividends and share repurchase programs, which provide a substantial portion of total shareholder returns. Lockheed Martin, for example, currently offers a dividend yield of approximately 2.7%, while General Dynamics yields around 1.7%. An abrupt halt to these payouts would fundamentally alter the investment case for holding the stocks.
In response to the news, Lockheed Martin's shares dropped by as much as 3% in morning trading, while RTX and General Dynamics saw similar declines. The move was widely seen by analysts as an attempt to exert political pressure on corporations that derive the bulk of their revenue from federal defense spending.
Capital allocation has long been a key pillar of the defense industry's strategy. Companies like RTX have historically emphasized their commitment to returning cash to shareholders as a sign of financial discipline and confidence in future cash flow. In 2023 alone, the top five U.S. defense firms returned more than $15 billion to shareholders through dividends and buybacks. These programs are typically planned years in advance and are a cornerstone of their financial management.
The demand creates a difficult choice for the boards of these companies: defy a prominent political figure and potential future president, or upend a core promise to their shareholders, particularly the large institutional investors and pension funds that form their ownership base. The long-cycle nature of defense manufacturing requires predictable capital planning, and this sudden interjection disrupts that stability.
While the immediate financial impact is uncertain, the statement underscores the unique political risks faced by the defense industry. Unlike other sectors, their primary customer is the U.S. government, making them highly sensitive to shifts in Washington's political winds. The situation will be closely monitored by investors, who must now weigh the risk of politically forced changes to corporate policy against the sector's strong fundamentals, which are supported by geopolitical instability and a robust U.S. defense budget.