President Donald Trump signed an executive order on Wednesday banning defense contractors from issuing dividends and buying back stock — until they produce weapons faster and invest more in American manufacturing plants.
Separately, Trump also called for a massive 66% increase in military spending to $1.5 trillion for 2027.
The dual announcements sent defense stocks on a roller coaster ride, with shares of major contractors initially plunging 2% to 3% before recovering in after-hours trading when Trump revealed the spending proposal.
“Defense Companies are not producing our Great Military Equipment rapidly enough and, once produced, not maintaining it properly or quickly,” Trump wrote on Truth Social. “Therefore, I will not permit Dividends or Stock Buybacks for Defense Companies until such time as these problems are rectified.”
The executive order, titled “Prioritizing the Warfighter in Defense Contracting,” takes effect immediately and bars companies from stock buybacks and “non-ordinary-course dividends” during periods the Pentagon deems them underperforming.
Defense Secretary Pete Hegseth has 30 days to identify contractors failing to deliver on time or invest enough in production capacity.
Trump also demanded defense executives build “NEW and MODERN Production Plants” within the United States, and said no executive should earn more than $5 million until they do. The order directs Hegseth to ensure future contracts cap executive base salaries at current levels and tie compensation to on-time delivery and increased production, rather than financial metrics like earnings per share.
“Executive Pay Packages in the Defense Industry are exorbitant and unjustifiable given how slowly these Companies are delivering vital Equipment to our Military, and our Allies,” Trump wrote.
The president singled out RTX, the parent company of Raytheon, warning the firm would receive no further Pentagon contracts unless it “steps up” investment in plants and equipment on American soil.
“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 said, adding the company cannot conduct any more stock buybacks “under no circumstances.”
Major defense contractors spent billions on shareholder returns in recent months. Northrop Grumman spent $1.17 billion on stock buybacks and paid $964 million in dividends in the nine months ended September 30. Lockheed Martin spent $2.25 billion on buybacks while paying out $2.33 billion in dividends over the same period.
Hours after announcing the announcement, Trump revealed his 2027 defense budget proposal of $1.5 trillion, up from the current $901 billion.
“This will allow us to build the ‘Dream Military’ that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe,” he wrote on Truth Social.
Trump said the spending increase would be funded by tariff revenue from foreign countries that have “ripped off the United States at levels never seen before.” He claimed the tariff income would allow the massive military buildup while also paying down national debt and providing “a substantial Dividend to moderate income Patriots within our Country.”
The Committee for a Responsible Federal Budget warned the proposal would add $5.8 trillion to the national debt over a decade. The group noted tariff revenue would cover only about 15% of the cost on a conventional basis based on prior estimates.
Hegseth previewed the contractor restrictions in a Monday speech at Newport News Shipyard, saying the Pentagon would give larger contracts to companies “that invest in more capability and more capacity, not companies that invest in stock buybacks or CEO salaries or more dividends.”
He added that defense companies that were “too comfortable with the old slow ways of doing business” would be replaced with “new partners.”
The issue had been discussed in the White House for weeks and was initially expected to be announced before Christmas.