Shares of America’s largest defense contractors took a sharp tumble on January 7, 2026, after President Donald Trump issued a dramatic ultimatum to the industry: ramp up manufacturing and research spending, or face a ban on dividends and stock buybacks. The president’s pronouncement, delivered via social media, sent shockwaves through Wall Street and forced investors to reconsider the once-reliable allure of defense stocks.
According to Reuters, Lockheed Martin shares were among the hardest hit, falling about 5% in after-hours trading to $496.87, with the stock dipping as low as $496.12 during the session. The selloff was echoed across the sector, with Northrop Grumman, RTX (formerly Raytheon Technologies), and other major players also seeing their stock prices slide. In total, roughly 3.85 million shares of Lockheed Martin changed hands by mid-day—a 59% surge over average daily volume, as reported by MarketBeat.
President Trump’s message was unambiguous. “MILITARY EQUIPMENT IS NOT BEING MADE FAST ENOUGH!” he wrote on his preferred platform, Truth Social. “It must be built now with the dividends, stock buybacks, and Over Compensation of Executives, rather than borrowing from Financial Institutions, or getting the money from your Government.” He went on to insist that “massive” amounts of capital devoted to shareholder rewards would no longer be allowed or tolerated, a stance that rattled both executives and investors.
The president’s frustration was especially pointed toward RTX Corp., the maker of the Patriot missile system. In a separate post, Trump accused RTX of being “the most aggressive spending on their Shareholders rather than the needs and demands of the United States Military.” He threatened that Raytheon, RTX’s defense division, would “no longer be doing business with Department of War” unless it “steps up” with more upfront investment in plants and equipment, according to Seeking Alpha and Barron’s.
For an industry long prized by investors for its steady and shareholder-friendly cash returns, the policy threat marked a sharp turn. Dividends and stock buybacks have been a staple of the sector’s value proposition. Buybacks, in particular, can boost earnings per share by reducing the share count, while dividends provide a reliable stream of income for holders. Lockheed Martin, for example, raised its quarterly dividend to $3.45 in October 2025 and added $2 billion to its repurchase authorization, bringing total buyback capacity to $9.1 billion, as reported by Reuters. The company paid out the new dividend on December 30, 2025, representing an annualized yield of 2.8% and a payout ratio of 77.05%.
Yet the White House’s pressure campaign landed just as Lockheed Martin was touting its own production achievements. The defense giant had signed a seven-year framework agreement with the U.S. Department of War to boost annual capacity for its PAC-3 Missile Segment Enhancement interceptors from roughly 600 to about 2,000 units. “We will create unprecedented capacity for PAC-3 MSE production,” CEO Jim Taiclet declared in a press release, describing the deal as a new model for scaled-up output.
Lockheed Martin also reported a record 191 F-35 fighter jets delivered in 2025, up from 110 the previous year. The company claims its F-35 production line is running “five times faster” than any other allied fighter currently in production, with the program contributing about one-third of Lockheed’s total revenue, according to Reuters and company statements.
Despite these gains, uncertainty now looms large. Trump’s threats did not come with a clear enforcement mechanism, leaving investors and analysts to speculate whether the rhetoric would morph into binding contract terms or regulatory changes. “The bigger question for equity holders is whether Washington’s message turns into formal restrictions on capital returns and executive pay, and whether that pressure spreads across contracts and funding decisions,” Reuters noted. If the administration forces more cash into factories and working capital, near-term free cash flow could take a hit—even if demand for military hardware remains robust.
Notably, Trump’s ability to unilaterally impose such measures is limited. As The Motley Fool observed, “At least on paper, Trump doesn’t have the power to unilaterally enact any of those measures.” Any attempt to curb dividends or buybacks would likely face stiff resistance from corporate boards, shareholders, and politicians across the aisle. Still, the president’s public stance signals a new willingness to use the federal government’s purchasing power as leverage over the industry.
Investors are now bracing for more clarity when Lockheed Martin reports its fourth-quarter and full-year 2025 results on January 29, 2026. The company last reported earnings per share of $6.95 for the third quarter of 2025, beating analyst estimates, with revenue of $18.61 billion also exceeding expectations. Lockheed Martin set its full-year 2025 earnings guidance at $22.15 to $22.35 per share, according to MarketBeat, and maintains a market capitalization of $114.91 billion with a price-to-earnings ratio of 27.73.
Wall Street’s response has been mixed. While two research analysts rate Lockheed Martin as a Strong Buy and four as a Buy, the majority—seventeen—have issued a Hold rating, and one has recommended Sell. The consensus price target sits at $506.18, just above current trading levels, reflecting both the company’s strong fundamentals and the new clouds of policy risk. Institutional investors continue to hold a commanding 74.19% stake in the company, despite the recent turbulence.
For now, the sector’s future hangs in the balance. If Trump’s administration manages to translate its rhetoric into enforceable rules, the era of reliable dividends and buybacks for defense contractors could be over—or at least significantly diminished. On the other hand, should the pressure ease or enforcement falter, the sector could rebound quickly, buoyed by strong demand and the enduring need for national security.
As the dust settles, all eyes are on Lockheed Martin’s upcoming earnings call and any further signals from the White House. The defense industry, accustomed to stability and predictability, now finds itself navigating uncharted territory—where politics, policy, and profit are more entangled than ever.
