By Aishwarya Jain
Feb 2 (Reuters) – Major U.S. defense contractors are significantly ramping up capital expenditure this year in response to President Donald Trump’s threat to limit dividends and share buybacks in his push to speed up weapons deliveries.
Despite ballooning demand for arms due to rising geopolitical conflicts, capital expenditure growth at large defense firms has stayed sluggish since 2022. However, companies have reversed course and now expect capital reinvestments to increase by more than a third this year.
On an aggregate basis, five major U.S. defense companies are projected to spend $10.08 billion in capex in 2026, up nearly 38% from $7.31 billion in 2025, according to Melius Research.
The Trump administration’s carrot-and-stick approach seems to be working, said Scott Mikus, analyst at Melius Research.
Multi-year missile production deals provide the carrot, while Trump’s order linking executive pay and shareholder returns serves as the stick, pushing defense contractors to invest in capacity, he said.
“Payout restrictions can be a forcing function for reinvestment, supply-chain financing and execution discipline,” said Meghan Welch, managing director at BGL Aerospace and Defense Advisory.
While nearly all major contractors are standing by quarterly dividends, some appear to be wavering on share buybacks.
Northrop Grumman said it would pause buybacks beyond January, while L3Harris said it expects its share count in 2026 to remain broadly in line with 2025, signaling limited scope for repurchases.
L3Harris also said it would step up capital expenditure by more than 40% in 2026.
Capital once allocated to buybacks is likely to be redirected toward supply-chain resilience, workforce expansion, domestic manufacturing and internal investment, Welch said.
Lockheed Martin, meanwhile, said it was still evaluating its strategy and declined to comment.
“While LMT did not make any direct comments on shareholder returns, we believe there is a clear lean towards capex and research and development,” said Ken Herbert, analyst at RBC Capital Markets.
“Our model now assumes no buybacks through 2028, but continued dividend payments,” he said.
(Reporting by Aishwarya Jain in Bengaluru; Editing by Pooja Desai)
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