Several unanswered questions remain about President Donald Trump’s defense-policy pivots.
On Wednesday, the president announced and then signed an executive order forbidding major defense contractors “in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget.” He also announced plans for a $1.5 trillion defense budget for fiscal year 2027, up roughly 50% from the planned spending for 50% in 2026.
It’s a “carrot” and “stick” approach for the sector, wrote Morgan Stanley analyst Kristie Liwag on Wednesday, pointing out that enforceability, thresholds, and scope are still up in the air.
The U.S. government is the largest customer of many defense contractors, but it doesn’t have an equity stake or a golden share that can dictate board-level policies. The executive order references the Defense Production Act, a 1950s law, which authorizes the government to compel companies to prioritize its orders over commercial concerns during national emergencies.
As for enforcement, the Defense Department will issue a report detailing the issues to offending companies, and the companies will have 15 days to respond. Defense Secretary Pete Hegseth will have some latitude in choosing enforcement actions.
Whether that will lead him further down the supply chain is hard to say. Sometimes suppliers are responsible for missed timelines, and sometimes changes in government requirements can add costs and delays.
Investors will simply have to wait to find out whether dividends will be cut and who will receive a report. Who qualifies as a major contractor is open to discussion. The White House didn’t respond to a request for a list of affected companies.
The obvious candidates are Lockheed Martin, Northrop Grumman, General Dynamics, L3Harris Technologies, Boeing, RTX, and Huntington-Ingalls Industries. They have long been considered major contractors. Boeing, General Dynamics, and RTX have large commercial businesses, but that doesn’t seem to matter. RTX was called out by Trump on Wednesday.
Of those, Northrop, L3Harris, Lockheed, General Dynamics, and RTX pay dividends and have recently repurchased stock. Huntington pays a $1.38 quarterly dividend, but didn’t buy back stock in the first three quarters of 2025. Boeing, by virtue of its recent struggles with the 737 MAX jet, doesn’t pay a dividend or buy back stock right now.
Smaller contractors that might not qualify as major contractors, such as drone technology companies AeroVironment and Kratos Defense & Security Solutions, typically don’t pay dividends or buy back stock.
Those two are the relative winners, and their shares soared 9% and 13%, respectively, over Wednesday and Thursday. AeroVironment’s stock added 5.8% on Friday. Kratos’ shares gained 9.3%.
As for the larger players, “capital return is a central part of the U.S. Defense investment case,” added Liwag. Still, “the budget development outweighs the capital allocation restrictions.”
Investors are slowly figuring that out. The iShares Aerospace & Defense ETF added 2.4% on Friday. Entering Friday trading, shares of Lockheed, Northrop, General Dynamics, RTX, and Boeing were down over the past two days. L3Harris and Huntington shares are up.
The latter two benefit from higher spending. Huntington, again, isn’t buying back stock. It has a relatively low dividend yield, at 1.5%, similar to L3Harris.
It feels odd, but no or low capital return seems to have become an advantage for some defense stocks now.
