Are U.S. defense contractors lavishing their investors too much?

Summary

The Indicator from Planet Money

Episode: Are U.S. defense contractors lavishing their investors too much?
Release Date: January 20, 2026
Host(s): Stephen Messaha, Terr
Guests: Stacey Pettyjohn (Center for a New American Security), Shannon Sakosha (Chief Investment Officer, Neuberger Berman)

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Overview

This episode explores President Trump's recent executive order aimed at restricting U.S. defense contractors from paying dividends or executing stock buybacks. The episode investigates the administration's frustration with the pace of weapons production, the potential impacts on the defense industry, and whether moves like these signal the nationalization of a traditionally private sector. The hosts speak with industry experts on both policy and investment sides, balancing the arguments for and against the new restrictions.

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Key Discussion Points and Insights

1. The Executive Order: What’s Changing?

• [00:01–00:58] President Trump signs an executive order threatening bans on defense contractor dividends and buybacks. The aim is to restrict companies from “rewarding their shareholders at the expense of investing in new factories.”
• [01:05] — Is this normal for private businesses?
  Stacey Pettyjohn: “No, no, not at all for private companies. That's why I think there's a question, are we nationalizing the defense industry?”

2. Why the White House Is Frustrated

• [02:46–03:34] Tomahawk missiles serve as an example:
  • Production hasn't kept pace with military demands; a recent deployment used 125 missiles, while annual output is often just 50–60.
  • Raytheon, principal manufacturer, blames supply chain issues for slowdowns.
• [03:34] President Trump on Truth Social:

  “Raytheon has been the least responsive to the needs of the Department of War, the slowest in increasing their volume, and the most aggressive spending on their shareholders rather than the needs and demands of the United States military.”

3. Supply Chain, Demand, and the Pentagon’s Role

• [04:21–05:54]
  Stacey Pettyjohn explains:
  • A thin industry with little competition due to long, winner-takes-all contracts.
  • Inconsistent purchasing from the Pentagon makes it hard for factories to ramp up:

    "They're pretty expensive... and then the next year they'll buy zero. So if you are a company that has a production line ... it's really hard to make enough investments in the production capacity to be at the high end all the time." (Pettyjohn, 05:09)

4. What’s Being Done About It

• [05:58–06:43] Government tweaks contracts to address issues:
  • New contracts allow for multiple winners in the production phase rather than just design.
  • Multi-year weapon contracts for continuity and stability.
  • Trump calls for a massive 50% defense budget increase.

5. Are Contractors Really "Lavishing" Investors?

• [06:43–07:36]
  • Administration claims: Contractors’ spending on investors up 70% over two decades; investment in factories, machines down.
  • Shannon Sakosha (Neuberger Berman CIO) disputes premise:

    “Are they paying some sort of outsized amount in dividends or outsized amount in buybacks and therefore not reinvesting into their business? And that's not really the story.” (07:26)

  • Defense sector’s buybacks in line with S&P 500 average; dividends are a bit higher, not “materially different”.

6. Potential Consequences and Investor Reactions

• [08:02] Sakosha warns of unintended consequences:

  “Shareholders would lose interest in potentially buying the shares... that would create additional challenges for them in being able to reinvest capital. And so it's a bit of a self-fulfilling cycle.”

• [08:24–08:54] Enforcement likely to be legally contested.

  • Defense stocks dipped after announcement but rebounded strongly.

7. How “Nationalized” is the Defense Industry Becoming?

• [09:02]

  “We're probably looking at some much more prescriptive approach in terms of how this would be implemented if it were to be implemented.” — Shannon Sakosha

• [09:15] Pettyjohn’s take on government intrusion:

  “This seems to be sort of a confused action and potentially one that could have a lot of unintended repercussions that hurt the US Military and reduce US Military capability in the long run.” — Stacey Pettyjohn (09:37)

8. The White House’s Justification

• [09:53] Deputy Press Secretary Anna Kelly responds:
  • Emphasizes the industry’s responsibility to equip U.S. warfighters.
  • Firm closing note:

    “The days of defence contractors prioritizing investor returns over military readiness are over.”

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Notable Quotes & Memorable Moments

• On the defense sector’s dividend and buyback story:

  “That's not really the story.” — Shannon Sakosha, 07:26

• On industry structure and competition:

  “We have a pretty thin industry in many areas. There aren't a lot of companies competing.” — Stacey Pettyjohn, 04:44

• On the “self-fulfilling cycle” risk:

  “Shareholders would lose interest in potentially buying the shares... and that would create additional challenges... it's a bit of a self-fulfilling cycle.” — Sakosha, 08:02

• On policy direction:

  “This seems to be sort of a confused action and potentially one that could have a lot of unintended repercussions that hurt the US Military and reduce US Military capability in the long run.” — Pettyjohn, 09:37

• On administration’s message to industry:

  “The days of defence contractors prioritizing investor returns over military readiness are over.” — Anna Kelly, 09:53

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Important Timestamps

• [01:06] – “Are we nationalizing the defense industry?” (Pettyjohn)
• [03:34] – President Trump’s public criticism of Raytheon
• [05:09] – Pettyjohn on government’s “lumpy” purchasing problem
• [07:26] – Sakosha disputes “outsized” investor rewards
• [08:02] – Potential market consequences of bans
• [09:37] – Pettyjohn warns of unintended repercussions
• [09:53] – White House defends the policy stance

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Tone and Final Thoughts

The tone throughout is measured but revealing—balancing White House frustrations with expert skepticism and business realities. The episode raises the underlying question of how much government intervention is too much, and whether new restrictions threaten the delicate balance between defense capability, innovation, and free market investment.

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Summary

This episode provides a compact but rich examination of the high-stakes intersection of defense industry practices, government oversight, and investor rewards, under the unusual market interventions proposed by the Trump administration. Both critics and supporters of the executive order agree: the ultimate impact will depend not just on government policy, but on how the defense sector, investors, and the U.S. military adapt to these fast-changing rules.

Transcript

[Stephen Messaha]

Npr. In early January, President Donald Trump signed an executive order threatening bans on defense contractors paying dividends or buying their stock back. This is yet another tightening of the grip on markets that we've seen under President Trump.

[Terr]

Yeah, like the US Government's now investing in rare earth minerals companies. It's taken a quote unquote, golden share in US Steel. Quite a change from the last few decades.

[Stephen Messaha]

So to explain this executive order, dividends are the classic way that companies send a slice of profits to investors.

[Terr]

And stock buybacks do a similar thing, but through a different mechanism. The company itself purchases shares of its own company. That means that whoever still holds onto the remaining shares is now holding onto a higher percentage of the company. So it raises the value of them.

[Stephen Messaha]

Trump basically wants to restrict defense companies from rewarding their shareholders at the expense of investing in new factories.

[Terr]

Is this normal?

[Stacey Pettyjohn]

No, no, not at all for private companies. That's why I think there's a question, are we nationalizing the defense industry?

[Terr]

Stacy Petitjohn is a director at the center for a New American Security, a defence think tank. And that question is fascinating. Is the government starting to take over decisions that have traditionally been made by the private sector? This is the indicator from Planet Money. I'm Terr.

[Stephen Messaha]

And I'm Stephen Messaha. Today on the show, possible bans on defense dividends and stock buybacks. We learn why the White House is so frustrated and talk to a defense investor about how they're reacting.

[Stacey Pettyjohn]

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[Stacey Pettyjohn]

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[Shannon Sakosha]

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[Terr]

Edu in the American war toolkit, the Tomahawk missile is like a Ford F150 pickup truck. It's a weapon that's popular, not necessarily the flashiest, but it gets the job done, the Tomahawk destroys targets far away, and the US Military can't get enough of them.

[Stephen Messaha]

In recent years, the industry has been making around 50 or 60 annually. But in just one recent deployment alone, the US used 125. That was against the Houthis.

[Terr]

In the Middle east, the main manufacturer of Tomahawk missiles is the private contractor Raytheon. And despite investing in new factories, it still takes years to build new Tomahawk Hawk missiles. Raytheon has blamed related missile delays on supply chain issues.

[Stephen Messaha]

President Trump is not convinced. In early January, he wrote on Truth Social, Raytheon has been the least responsive to the needs of the Department of War, the slowest in increasing their volume, and the most aggressive spending on their shareholders, rather than the needs and demands of the United States military. We asked Raytheon for comment through repeated emails and a registered letter, but did not receive a response before publishing.

[Terr]

The spat of a Raytheon reflects broader frustrations that President Trump and Defence Secretary Pete Hegseth have at the moment. They believe contractors aren't producing weapons fast enough. Here's Hegseth talking about those companies late last year at the National War College. Schedule overruns, huge order backlogs, and too predictable Cost increases become the norm.

[Stacey Pettyjohn]

He's definitely grumpy.

[Stephen Messaha]

To learn more about what Hegseth's talking about, we spoke to Stacey Pettyjohn from that defense think tank.

[Stacey Pettyjohn]

They want things to be produced faster. And I think there's general agreement that right now the US Industry is not moving fast enough.

[Terr]

Stacy believes that much of the problem starts with the Pentagon.

[Stacey Pettyjohn]

A lot of it is due to the customer, the U.S. department of Defense. That has led us to this place where we have a pretty thin industry in many areas. There aren't a lot of companies competing.

[Stephen Messaha]

Stacy says one reason for this is that contracts can be for a really long period. And so that has locked the government into perhaps a single supplier for potentially decades without competition.

[Stacey Pettyjohn]

The second piece is consistency. So the US Government is a terrible customer. They will buy, like, say, Tomahawk missiles one year, the Navy will buy 100 or 200. They're pretty expensive. They're over a million dollars each, and then the next year they'll buy zero. So if you are a company that has a production line that is set up to produce 100 tomahawks a year, and your only buyer sometimes wants 100, sometimes wants 0, sometimes wants 20, it's really hard to make enough investments in the production capacity to be at the high end all the time because Your production lines are just actually being unused and those are incurring losses.

[Stephen Messaha]

Now, allies like the UK also buy some Tomahawks, but the US is the big buyer now.

[Terr]

To the administration's credit, it recognizes these two problems with government purchasing. That long contracts have been this winner takes all situation that stifles competition and also that government demand has been lumpy, very up and down, and it's doing things to address it, like awarding contracts for one company to design a new fighter plane, for example, but then have multiple companies awarded contracts to actually do the production.

[Stephen Messaha]

And Congress has recently approved multi year weapon contracts so that contractors can have more certainty each year. So those are some tweaks to contracts. Another way to get more weapons made faster is just more money to motivate those companies. Donald Trump is advocating for a massive 50% increase to the defense budget.

[Terr]

Clearly, the administration isn't satisfied with all these measures. Trump's executive order says part of the problem is too much money going to investors and not enough into investment. Between the 2000s and the 2000s, military contractors lavished just over 70% more on their shareholders as a share of revenue. But spending on things like factories and machines went down. So you can imagine Hegseth and Trump looking at this and saying, hey, you're not spending enough on making Tomahawks and too much on shareholders.

[Stephen Messaha]

But Shannon Sakosha begs to differ. Shannon is the chief Investment officer for Newberg Berman, an asset manager that invests in the defense sector, including Raytheon.

[Shannon Sakosha]

Are they paying some sort of outsized amount in dividends or outsized amount in buybacks and therefore not reinvesting into their business? And, and that's not really the story.

[Terr]

Shannon says if you take the S&P 500 index of large US companies, the average company there spends a similar amount in stock buybacks. In other words, a similar amount rewarding shareholders by buying up its own share. Dividends are higher for defence stocks, but she doesn't think it's materially different. She says that if the Trump administration were to follow through on its threat and really clamp down on defence dividends and buybacks, this could backfire.

[Shannon Sakosha]

The unintended consequence would be that shareholders would lose interest in potentially buying the shares of these companies and that would create additional challenges for them in being able to reinvest capital. And so it's a bit of a self fulfilling cycle.

[Stephen Messaha]

Overall though, Shannon sees a lot of pros and cons for investors in the current defense environment. Remember, this executive order was paired by a call to drastically increase defense spending. Shannon says what will really matter is what happens next. The government does have broad powers through the Defense Production act, but any enforcement of a ban would likely get tied up in legal proceedings. To these points, defense and aerospace stocks dipped a little on the day of the announcement, but then rocketed up further the next week.

[Terr]

That said, the executive order does raise questions about whether the Trump administration is turning to more state control over defence production.

[Shannon Sakosha]

We're probably looking at some much more prescriptive approach in terms of how this would be implemented if it were to be implemented.

[Stephen Messaha]

This idea of government meddling troubles Stacey Pettijohn, the defense policy director. Overall, she supports the approach. We have now a collaborative relationship between the government and business, she says. It's led to a lot of innovations like, say, ongoing improvements to the Tomahawk missile. Stacey thinks this executive order risks undermining that model.

[Stacey Pettyjohn]

This seems to be sort of a confused action and potentially one that could have a lot of unintended repercussions that hurt the US Military and reduce US Military capability in the long run.

[Terr]

We asked the White House whether it considered the executive order could discourage investment. White House Deputy Press Secretary Anna Kelly put the onus back on the defence industry, saying it was the industry's responsibility to ensure U.S. warfighters have the best possible equipment and weapons. She said the days of defence contractors prioritizing investor returns over military readiness are over. This episode was produced by Corey Bridges with engineering by Maggie Luthar. It was fact checked by Sarah Juarez. Cake and Cannon edits the show and the indicator is a production of npr.

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