Defense Stocks Dive as Trump Order Halts Buybacks, Dividends
Executive action freezes shareholder payouts for major contractors, demanding firms reinvest in production capacity and citing delivery delays.
The aerospace and defense sector was rocked Tuesday after President Trump signed an executive order halting stock buybacks and dividend payments for defense contractors, wiping out over $15 billion in market value from the industry's top three players alone.
The order, signed January 7, explicitly freezes shareholder distributions for major defense firms until the administration deems production levels and delivery speeds have sufficiently improved. The move sent shockwaves through the market, directly targeting the capital allocation strategies that have made defense stocks a haven for income-oriented investors.
Shares of Northrop Grumman (NOC) bore the brunt of the sell-off, plummeting 5.5% and erasing approximately $5.1 billion in market capitalization. Lockheed Martin (LMT), the Pentagon's largest contractor, fell 4.8%, shedding over $6.1 billion in value, while General Dynamics (GD) slid 4.2%, a loss of more than $4.2 billion.
The executive action accuses companies of prioritizing shareholder payouts at the expense of national security, citing "slow delivery and prioritizing shareholder payouts over investment in new facilities" as the primary justification. This follows earlier warnings, where Trump cautioned defense CEOs about potential limits on executive salaries and stock buybacks.
For years, leading defense firms have been a reliable source of shareholder returns. Lockheed Martin, for example, carried a dividend yield of over 2.5%, while Northrop Grumman and General Dynamics also provided steady payouts. These returns are now suspended indefinitely, forcing a fundamental strategic shift for the companies.
The administration's move represents a dramatic escalation in its campaign against the industry's financial practices. As reported by Forbes, criticism has been mounting over the use of taxpayer funds that indirectly fuel multibillion-dollar buyback programs. The executive order now compels companies like General Dynamics to redirect that cash, theoretically toward expanding and modernizing production lines to meet geopolitical demands.
Investors are now left to grapple with the uncertainty. The order's conditions for lifting the restrictions remain vague, tied to an undefined improvement in production output. The move fundamentally alters the investment thesis for the sector, shifting the focus from stable shareholder returns to operational performance and compliance with executive branch directives. The long-term impact on valuations will depend on how quickly these firms can meet the new production mandates and whether the freeze on shareholder returns stifles investor appetite for the sector.