Investors in defense companies are concerned about an executive order from President Donald Trump that limits CEO pay, dividends, and stock buybacks. The order, issued on January 7, states that defense contractors cannot pay dividends or buy back shares until they deliver superior products on time and within budget. Additionally, it sets a limit on CEO payouts to $5 million annually. While Trump has promised to increase federal defense spending, investors feel this order interferes with the industry, which typically aligns payouts with other major U. S. corporations.
David Sowerby, a managing director at Ancora Advisors, expressed worries that this approach might drive top executives to seek opportunities in other fields, ultimately harming shareholder value. He questioned where the restrictions might end if salaries are capped. Charles Lieberman, a chief investment officer at Advisors Capital Management, noted that Trump’s orders imply companies might be slowing capital spending to fund payouts to shareholders and executives. He believes that companies won’t invest more in their operations without sufficient orders, even though they currently have enough cash to build new facilities.
The Pentagon has not provided comments on the situation, but a White House spokesperson, Anna Kelly, stated that the priority for defense contractors should be delivering weapons to the military rather than their own financial gains. Christopher Calio, CEO of RTX, reassured investors of his company’s commitment to dividends while also meeting their investment needs. Meanwhile, Northrop’s CFO mentioned that they would reassess their dividend plans in May without further stock repurchases.
Historically, many defense contractors continued paying dividends during major conflicts, indicating that the Pentagon’s influence on capital allocation is significant. Richard Aboulafia, a management consultant, warned that limiting dividends might negatively affect established companies, favoring newer businesses that do not share similar financial practices.
Recent data shows that CEO compensation in defense is comparable to that in other large firms, with median pay for top executives at leading contractors being about $19 million in 2024. In terms of payouts, over the past five years, multiple defense companies had extensive dividend and buyback ratios relative to their net income. In contrast, Boeing had minimal payouts during the same timeframe. Overall, the highest-revenue U. S. companies paid out an average of 87% during that period.
With information from Reuters
