Defense stocks slipped after Trump pledged to stop defense contractors from paying dividends and carrying out stock buybacks until they increase weapons production and improve performance. (By: MEGA)
Defense stocks fell after President Donald Trump said he would block defense contractors from paying dividends or repurchasing shares until they speed up weapons production, according to Reuters.
Trump has repeatedly criticized the defense industry for what he describes as excessive costs and sluggish performance, warning that he is prepared to introduce sweeping changes to boost the manufacturing of war equipment.
He has rolled out aggressive new policies targeting the defense sector, with the goal of accelerating weapons output and modernizing what he has called a “dream military.”
“After years of misplaced priorities, traditional defense contractors have been incentivized to prioritize investor returns over the Nation’s warfighters,” Trump said in an executive order released by the White House on Wednesday, January 7.
Indefensible?
Donald Trump has warned U.S. government contractors of repercussions if they fail to improve production speed. (By: ZUMAPRESS.com / MEGA)
Defense stocks — including Lockheed Martin, Northrop Grumman, and General Dynamics — declined after a series of Truth Social posts Trump shared the same day. The drop erased gains made earlier following the capture of Venezuelan President Nicolás Maduro and his wife, Cilia Flores.
“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 about the maker of the Patriot missile defense system.
The executive order stated that defense contractors would not be allowed to pay dividends or buy back stock “until such time as they are able to produce a superior product, on time and on budget.”
‘Shareholders are gonna have a say on this’
Defense Secretary Pete Hegseth was instructed to identify defense contractors that are underperforming. (By: MEGA)
Pentagon chief Pete Hegseth has been tasked with identifying underperforming defense contractors, as well as those that have engaged in stock buybacks.
“Additionally, the Secretary shall ensure such future contracts stipulate that executive incentive compensation for contractors will not be tied to short-term financial metrics, such as free cash flow or earnings per share driven by stock buybacks, and instead will be linked to on-time delivery,” the order said.
Trump also criticized what he called “exorbitant and unjustifiable” executive pay packages in the defense industry, arguing they should be capped at $5 million — far below what many executives currently earn.
Legal experts have raised serious questions about the president’s authority to regulate private corporate actions, including executive pay and stock buybacks, through an executive order.
“What’s his real power to do this kind of stuff?” asked defense industry analyst Byron Callan. “You can jawbone the industry, but at the end of the day, the boards of directors are the ones who are going to decide pay. Shareholders are certainly gonna have a say on this.”
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