President Donald Trump signed an executive order on Wednesday to block defense companies from paying dividends or buying back stock until they improve production and delivery performance.
“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,” the order reads.
Trump and the Pentagon have criticized the defense industry for what they describe as high costs and slow production. The administration has vowed to make changes to boost production of military equipment.
“I am committed to ensuring that the United States military possesses the most lethal warfighting capabilities in the world,” the order reads. “Our Nation can only be at peace if we maintain strength. The performance of America’s defense industrial base is critical to this capacity. After years of misplaced priorities, traditional defense contractors have been incentivized to prioritize investor returns over the Nation’s warfighters.”
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“While the United States produces the best military equipment in the world, we do not make enough of it quickly enough to meet the needs of our military and our partners,” it added. “As a result, in these dangerous times, it is imperative that our defense contractors be held to the highest standards intended to ensure the advancement of core national interests, including with respect to the timeliness and quality of the defense items that they deliver.”
Trump made similar remarks earlier on Wednesday on Truth Social.
“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,” he wrote.
Raytheon is a unit of the defense contractor RTX.
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Defense stocks fell after Trump’s posts, reversing recent upticks following the use of U.S. military equipment to strike Venezuela and capture its President Nicolás Maduro and his wife from the Latin American country.
Shares of defense giant Lockheed Martin fell 4.8%, Northrop Grumman slid 5.5%, and General Dynamics fell 3.6% during afternoon trading in New York.
RTX shares went down 2% before recovering and climbing 2.5% in after-hours trading.
Trump’s order said that within 30 days, Pentagon chief Pete Hegseth will identify defense contractors who are underperforming on their contracts that have engaged in stock buybacks. Hegseth would then engage with those companies and give them a chance to submit a remediation plan for review by the Pentagon within a 15-day period after the notification.
If Hegseth determines a remediation plan to be insufficient, steps could be taken to secure remedies, including through enforcement actions.
Within two months, Hegseth would need to ensure that any future defense contracts contain provisions banning any stock buyback if the firm is underperforming its contract.
“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.
The order directed the U.S. Securities and Exchange Commission to consider regulations to implement the proposed restrictions.
Reuters contributed to this report.
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