Defense Stocks Sink After Trump Orders Contractors To Halt Dividends, Buybacks

Defense stocks fell sharply Wednesday after President Donald Trump ordered U.S. defense contractors to halt dividends and share buybacks, accusing the industry of underinvesting in production while paying executives too much.

The iShares U.S. Aerospace & Defense ETF (NYSE:ITA) fell more than 1%, snapping a three-session winning streak. The SPDR S&P Aerospace & Defense ETF Trust (NYSE:XAR) dropped about 0.9%.

Several major defense names slid hard in afternoon trading.

Redwire Corporation (NYSE:RDW) fell nearly 7%. Northrop Grumman Corporation (NYSE:NOC) dropped more than 4%. Lockheed Martin Corporation (NYSE:LMT) declined about 3.5%. VSE Corporation (NASDAQ:VSEC) lost roughly 3.6%.

What Did Trump Order?

In a lengthy statement on social, Donald Trump said defense contractors must immediately stop paying dividends and buying back shares.

He highlighted companies were issuing "massive dividends" and "massive stock buybacks" instead of investing in plants, equipment and faster production.

"This situation will no longer be allowed or tolerated!" Trump added.

Why Are Dividends And Buybacks Under Fire?

Trump said military equipment production is moving too slowly and maintenance is falling short.

"Defense companies are not producing our Great Military Equipment rapidly enough and, once produced, not maintaining it properly or quickly," Trump said.

According to Trump, dividends, share buybacks and elevated executive compensation will remain prohibited until companies build new and modern production facilities, accelerate output of current equipment and improve the speed and quality of repairs.

What About Executive Pay?

Trump also took aim at executive compensation across the defense industry.

"Executive Pay Packages in the Defense Industry are exorbitant and unjustifiable," Trump said.

He said salaries, stock options and other compensation are "far too high" given delivery delays.

Trump said executives should not earn more than $5 million until production and maintenance problems are fixed.

How Long Will The Restrictions Last?

Trump said dividends, stock buybacks and high executive pay will remain banned until companies fix production and maintenance issues.

"I will not permit dividends or stock buybacks for defense companies until such time as these problems are rectified," Trump said.

He indicated that relying on buybacks instead of reinvesting forces companies to borrow or seek government funding.

“Longer term, this is good for both executives and shareholders,” he added.

Why Markets Reacted Fast

Investors sold defense stocks as traders weighed the impact on cash returns and capital allocation.

Dividend payments and buybacks have been key pillars of defense stock valuations. The sudden restriction raised concerns about near-term shareholder returns and corporate flexibility.

The defense sector has been one of the market's more stable income plays in recent years. Wednesday's move showed how quickly that narrative can change.

Photo: noamgalai/Shutterstock