U.S. President Donald Trump on Wednesday vowed to block major defense contractors from paying dividends or buying back shares until they significantly speed up weapons production, delivering a rare presidential strike at Wall Street norms that sent defense stocks sharply lower and signaled sweeping changes for America’s military-industrial complex.
In an executive order released by the White House, Trump accused traditional defense firms of prioritizing shareholder returns over battlefield readiness, echoing long-standing Pentagon complaints about high costs, slow delivery, and chronic delays across major weapons programs.
“After years of misplaced priorities, traditional defense contractors have been incentivized to prioritize investor returns over the Nation’s warfighters,” Trump said in the order, which took effect immediately.
The announcement rattled markets. Shares of Lockheed Martin fell 4.8%, Northrop Grumman slid 5.5%, and General Dynamics dropped 3.6% in afternoon trading in New York. The declines reversed recent gains that followed the use of U.S. military equipment in a dramatic weekend operation that resulted in the capture of Venezuelan President Nicolás Maduro and his wife, who were seized in Venezuela and flown to New York.
Trump intensified pressure on social media, singling out Raytheon, a unit of RTX, as particularly unresponsive. “I have been informed by the Department of War that Defense Contractor, Raytheon, has been the least responsive to the needs of the Department of War,” Trump wrote on Truth Social. Raytheon manufactures the Patriot missile defense system, heavily used in Ukraine, as well as Tomahawk cruise missiles deployed by militaries worldwide.
RTX shares initially fell about 2% after the post before recovering and rising 2.5% in after-hours trading. An RTX spokesperson did not immediately comment.
Under the executive order, defense contractors are barred from paying dividends or conducting stock buybacks “until such time as they are able to produce a superior product, on time and on budget.” Within 30 days, Pentagon chief Pete Hegseth is required to identify contractors that are underperforming on existing contracts while continuing shareholder payouts. Those companies will have 15 days to submit remediation plans for Pentagon review.
If the plans are deemed inadequate, the government may pursue remedies, including enforcement actions. Within two months, Hegseth must also ensure that all future defense contracts include provisions prohibiting stock buybacks when a contractor is underperforming.
The order goes further by targeting executive compensation. It mandates that future contracts tie incentive pay to on-time delivery, increased production, and operational improvements, rather than short-term financial metrics such as earnings per share boosted by buybacks. Trump also described defense industry executive pay packages as “exorbitant and unjustifiable,” calling for caps of $5 million—far below the more than $20 million annually that many top defense CEOs earn through salaries, bonuses, and stock awards.
While Trump did not specify exactly how compensation would be capped, the order directs the Pentagon to freeze executive base salaries at current levels once underperformance is identified.
The U.S. Securities and Exchange Commission was instructed to consider issuing regulations to help implement the proposed ban, marking an unusual overlap between defense procurement policy and securities regulation.
Share buybacks and dividends have long been staples of the defense sector. Lockheed Martin, for instance, raised its dividend for the 23rd consecutive year in October to $3.45 per share and authorized up to $2 billion in additional share repurchases, bringing its total buyback authorization to $9.1 billion.
Industry groups had been on high alert amid reports of the proposal. Major programs have faced mounting scrutiny, including Lockheed’s F-35 fighter jet, which has been plagued by cost overruns and delays. Northrop Grumman’s $140 billion Sentinel intercontinental ballistic missile program, designed to replace the aging Minuteman III, is years behind schedule and 81% over budget, according to the U.S. military.
“From this moment forward, these Executives must build NEW and MODERN Production Plants,” Trump posted, demanding faster delivery and a fundamental shift in how America’s weapons are made.
