Major US defence manufacturers maintain optimistic financial outlooks despite a White House threat to punish firms for purchasing their own shares in public markets.
Companies use stock buybacks, also called share repurchases, to boost their stock’s value by reducing the number of shares outstanding, to the benefit of shareholders. The practice was once illegal but became common after US securities regulators implemented a “safe harbour” rule in 1982.
But share repurchases have become a common point of criticism against American corporations, with opponents arguing capital would be better used to develop new products and more-efficient production systems, or to simply increasing worker pay.
While those critiques typically come from the US political left, Republican President Donald Trump most recently turned a spotlight on stock buybacks.
“Defence contractors are currently issuing massive dividends to their shareholders and massive stock buybacks, at the expense and detriment of investing in plants and equipment,” the president declared in a 7 January post to his Truth Social site. “This situation will no longer be allowed or tolerated!”
The White House that day issued a presidential executive order titled “Prioritising the Warfighter in Defense Contracting”.
“Many large contractors – while underperforming on existing contracts – pursue newer, more-lucrative contracts, stock buybacks and excessive dividends to shareholders at the cost of production capacity, innovation and on-time delivery,” the 7 January order states.
“Effective immediately, they are not permitted 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,” it adds.
Of the so-called “Big Five” US defence contractors, four have issued stock dividends or engaged in share buybacks in recent years, including Lockheed Martin, RTX, Northrop Grumman and General Dynamics.
Aircraft manufacturer Lockheed Martin announced a $2 billion share buyback in October, along with an increase to the company’s regular dividend.
Investment research firm Morningstar says the seven largest US defence contractors have repurchased some $128 billion in stock over the past 10 years – a figure roughly similar to US defence outlays for research, development, procurement and maintenance during the period.
In that group, only Boeing has eschewed the practice recently, as it has addressed financial struggles following the 737 Max crisis, Covid-19 pandemic and production-quality problems.
Boeing did the opposite of share repurchasing in 2024 by issuing more than $20 billion in new stock, raising badly needed cash.
Major suppliers of intermediate defence products – firms like L3Harris, GE Aerospace and Honeywell – have active dividend and stock-buyback programmes.
But it was industrial conglomerate RTX that attracted Trump’s recent ire, earning a call-out in the president’s preferred fashion.
“I have been informed by the Department of War that defence contractor, Raytheon, has been the least responsive to the needs of the Department of War,” Trump said in another 7 January Truth Social post.
The president claims Raytheon, a munitions and sensor subsidiary of RTX, has prioritised “aggressive” shareholder spending over increasing industrial output to a level considered satisfactory by the White House.
“Either Raytheon steps up and starts investing in more… plants and equipment, or they will no longer be doing business with Department of War,” Trump adds.
RTX declines to comment.
The company has taken significant action to compensate shareholders in recent years. It has “returned” some $37 billion to stockholders since 2020 in the form of dividends and buybacks – a stated goal following the 2020 merger of Raytheon and United Technologies Corporation that created RTX.
In August, chief financial officer Neil Mitchill projected the company would reach that target by the end of 2025. RTX is due to report its full-year 2025 financial results on 27 January.
Raytheon and Lockheed provide some of the Western world’s most-critical defence articles, particularly precision munitions like Tomahawk cruise missiles, Long Range Anti-Ship Missiles, Advanced Medium Range Air-to-Air Missiles and Joint Air-to-Surface Standoff Missiles.
Those munitions require complex manufacturing often involving time-consuming hand tooling by human workers. That, combined with limited orders during the post-Cold War period, has left some manufacturers hesitant to invest in production capacity.
Both Lockheed and Raytheon have significantly expanded their factory lines in recent years, with Lockheed adding a second production line for JASSM and LRASM cruise missiles and Raytheon restarting a shuttered line that assembles shoulder-fired Stinger anti-air missiles.
Lockheed also says that it delivered a record 191 F-35 stealth fighters in 2025.
Those steps have apparently been insufficient for the White House.
The president’s recent executive order directs new Pentagon contracts to ban suppliers from issuing buybacks or corporate distributions during any “period of underperformance [or] non-compliance” within the terms of a deal.
The secretary of war is empowered to enforce a ban in cases of “insufficient prioritisation of the contract, insufficient investment or insufficient production speed”, the order says.
For vendors found in non-compliance, Trump threatens to wield broad powers granted under the 1950 Defense Production Act, which empowers presidents to intervene in certain matters of private business concerning national defence.
The executive action’s likelihood of encouraging firms to boost defence production remains unclear.
“There’s only so much you can do with your capital,” says Tony Bancroft, aerospace and defence portfolio manager at Gabelli Funds.
Bancroft, a former Boeing F/A-18 pilot who now oversees the defence-focused GCAD exchange traded fund, says the defence industry’s unique market structure can make it difficult or even financially unwise for manufacturers to invest excess capital in expanded production.
“You’re not going to build two lines for some of these capital-intensive, very technical things,” Bancroft notes.
“Sometimes buying your own stock is probably the most-effective thing you do your cash flow,” he adds. “It’s hard to find where to put new capital on your own… We’re not making chocolate bars here.”
Other investment options include acquiring promising start-ups or struggling suppliers, which defence companies have done in recent years, such as L3Harris’ purchase of rocket motor producer Aerojet Rocketdyne.
However, antitrust actions under prior President Joe Biden may make some players wary of that strategy. Regulators blocked a bid from Lockheed to acquire Aerojet Rocketdyne in 2022.
Bancroft says defence companies’ executive compensation and corporate financial practices largely align with those of other industrial sectors.
Trump’s executive order quickly sent major US defence stocks tumbling. Those losses were largely erased when Trump in quick succession declared he will seek $500 billion in additional defence spending in fiscal year 2027. The plan would bring total spending to $1.5 trillion, up from $1 trillion in FY2026.
Mixed messaging aside, financial analysts predict strong performance from the US defence sector in the year ahead.
Morningstar views US defence contractors as “mostly fairly valued” after the 7 January selloff. Equity analyst Nicolas Owens says the threat of restrictions on stock buybacks does not represent a significant headwind.
“While share repurchases inform our evaluation of companies’ capital allocation policies, they do not impact our fair-value estimates, which reflect the present value of our forecast free cash flow for the firm,” he says.
Bancroft concurs, arguing global demand for defence products will offset downward pressure stemming from limits on dividends or stock buybacks.
“There’s a secular demand,” he says. “It’s just not going to change. I think the world is not getting any safer.”
