Defense Primes ‘Committed to the Dividend’ but Pledge More Production

Following the Trump administration’s call for defense companies to prioritize investments in production capacity and technology development over shareholder payouts, some of the Pentagon’s largest prime contractors say they’re attempting to strike a balance between the government’s needs and investor demands. 

During earnings calls this week, executives from Lockheed Martin, Northrop Grumman, RTX, L3Harris, and General Dynamics all said they expect to continue paying dividends while also spending more internal funding on capacity and capability development. However, several CEOs indicated they’re evaluating their approach to stock buybacks amid pressure from the White House and the Pentagon. 

Jim Taiclet, CEO of Lockheed Martin, said in a Jan. 29 investor call the firm will continue its “disciplined and dynamic” approach to capital allocation but will invest more of its own funds in manufacturing capacity and research and development, especially in areas like missile production where the Pentagon is signaling high demand. The company announced earlier this month it had agreed to a multiyear production framework agreement for Patriot Advanced Capability-3 missile production, and Taiclet said Lockheed has reached a similar deal on its Terminal High Altitude Area Defense interceptor. 

“The introduction of these long-term contracts, which I do think will be extended and expanded by the Department of War, creates stable growth opportunities for companies like us where the [return on investment] will exceed our cost of capital,” Taiclet said, referring to the department by its alternate title approved by Trump. “Therefore, we should invest in those stable growth opportunities.”

Asked whether Lockheed would hold off on stock buybacks—a tool companies use to increase share value by limiting supply—Taiclet demurred: “We will be evaluating all of our capital deployment options as time progresses. We’ll announce those decisions, as they occur, publicly, as has always been our practice.”

Other CEOs offered similar comments, emphasizing plans to maintain shareholder dividends while increasing spending on key munitions, space, and aircraft programs, as well as supply chain improvements and production lines. General Dynamics CEO Phebe Novakovic said Jan. 28 the firm is “committed to the dividend,” but acknowledged that the practice is “not particularly popular right now.”

“Our strategy remains to heavily invest in the business because it’s justified given the demand and the backlog,” she said.

Contractor Accountability

This month’s earnings reports are the first since the White House and the Pentagon unveiled several initiatives aimed at improving performance and increasing accountability for top defense contractors. In November, Defense Secretary Pete Hegseth unveiled an expansive acquisition reform agenda that labeled major primes as “stagnant” and criticized their reliance on obsolescent parts, outdated processes, and “stale innovation.”

Then, in a Jan. 7 executive order titled “Prioritizing the Warfighter in Defense Contracting,” the White House homed in on the investment practices of major firms.

“Many large contractors—while underperforming on existing contracts—pursue newer, more lucrative contracts, stock buybacks, and excessive dividends to shareholders at the cost of production capacity, innovation, and on-time delivery,” the order states. “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.”

That same day, President Donald Trump posted on Truth Social that Raytheon, the defense-focused arm of RTX, was a “prime offender,” claiming the company spends aggressively on its shareholders while neglecting military demands. 

“If Raytheon wants further business with the United States Government, under no circumstances will they be allowed to do any additional Stock Buybacks, where they have spent Tens of Billions of Dollars, until they are able to get their act together,” Trump wrote.

RTX’s CEO Chris Calio insisted Jan. 27 that the company’s relationship with the Pentagon is on solid footing but acknowledged that the firm needs to improve its performance.

“We absolutely feel the responsibility and urgency to deliver more and deliver it faster,” he said, adding that Raytheon is working with the Pentagon to find ways to increase output and deliver capabilities faster. 

“We are working in partnership with them on ways to move output faster and to accelerate—whether that be through different requirements or testing protocols or anything within our shop that can make things more efficient in partnership with the customer,” Calio said. 

Pentagon Investments

But even as Pentagon leaders criticize some underperforming defense companies, the department in recent months has announced major partnerships with other firms. Along with its agreements with Lockheed for PAC-3 and THAAD—which would more than triple production for both systems—the Pentagon announced Jan. 13 it would take a direct stake in L3Harris Technologies’ solid rocket motor business by investing $1 billion in the firm. 

The company said Jan. 29 it’s expecting double-digit growth in its missile propulsion business “for the foreseeable future.” 

“Their stake is solely economic,” L3Harris CEO Chris Kubasik said, addressing a question about the Pentagon’s investment. “They want greater capacity quickly and a return on investment. The strategy is straightforward.”

Inside Defense reported Jan. 28 that more deals between the Pentagon and industry could materialize in the near future, citing comments from Pentagon acquisition chief Michael Duffey.

Northrop Grumman, the Pentagon’s other major solid rocket motor supplier, is not currently in talks with the government about investments, CEO Kathy Warden said Jan. 27. Asked whether DOD’s investment in L3Harris puts Northrop at a disadvantage, she said the key to remaining competitive is meeting the department’s capacity needs.

“I would say that as we think about being positioned to compete, it’s all about the munitions that you can support with your capacity,” Warden said. “We feel good about that. . . . I think there’s room for growth for many companies.”