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President Trump has issued an executive order that could bar defense contractors from paying dividends to investors or engaging in share buybacks, with the stated goal of improving production capacity, innovation and on-time delivery.

What’s going on: The president’s order directs the secretary of war to identify any contractors that are “underperforming on their contracts, not investing their own capital into necessary production capacity, not sufficiently prioritizing [Pentagon] contracts or whose production speed is insufficient.”

• Underperforming contractors must negotiate a “remediation plan” or face limitations on dividends and buybacks. Going forward, the secretary of war will negotiate future contracts that would trigger dividends and buybacks restrictions in instances of underperformance.
• The order also calls for linking executive compensation incentives to metrics such as on-time delivery, increased production and operating improvements.

The rationale: “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,” the EO claims, alleging that the common capital allocation practices of dividends and buybacks represent the industry “pursu[ing] investor profits at the expense of warfighter capability and readiness.” 

Why it’s important: Most publicly traded companies utilize quarterly dividends and buybacks to allocate capital efficiently and provide returns to shareholders that have provided much-needed investment capital.

• More than 80% of S&P 500 companies provide dividends to their shareholders, while 77% of S&P 500 firms had engaged in share buybacks within the past year as of Q1 2025.
• Preventing defense contractors from utilizing dividends or buybacks could discourage investors from holding that company’s shares—potentially threatening production capacity, speed and innovation.

The NAM’s take: “Manufacturers throughout the defense industrial base are investing in the development of innovative, cutting-edge products—and are committed to meeting the needs of our nation’s warfighters,” said NAM Managing Vice President of Policy Charles Crain. “It is vital that companies can continue to utilize America’s world-leading capital markets to attract the funds necessary to hire, innovate and increase production.”