Sen. Elizabeth Warren (D-Mass) has urged the five largest US defense contractors to halt stock buybacks and dividend payments, citing more than $100 billion in shareholder payouts since 2020. Warren questioned the rationale for returning capital to shareholders when taxpayers fund military equipment production, stating on X that the practice "needs to stop."

The lawmakers' scrutiny follows a January vow by President Donald Trump to block such payouts until weapons production accelerates. In response to political pressure, some contractors have adjusted their capital allocation strategies, though divergence remains across the sector.

Divergence in Capital Allocation

A bipartisan analysis released earlier this month by Warren and Sen. Mike Lee (R-Utah) highlighted contrasting approaches among the top four defense contractors in the first quarter of 2026 compared with the same period a year earlier.

Lockheed Martin Corp., RTX Corp., Northrop Grumman Corp., and General Dynamics Corp. collectively cut combined buybacks and dividends by roughly 36%. The total payout from these four firms dropped from $4.2 billion to $2.7 billion.

GE Aerospace bucked this trend, increasing stock buybacks by 21% year-over-year to $2.3 billion in the same quarter. Lawmakers cited this gap in a letter urging Defense Secretary Pete Hegseth to support legislation that would codify Trump's executive order into law.

What the Numbers Show

The data reveals a sharp split in capital discipline within the defense sector. While the aggregate payout from the four largest contractors fell significantly, GE Aerospace's decision to increase buybacks by $400 million (derived from 21% growth to $2.3 billion) suggests that not all firms are aligning with the administration's push to prioritize production reinvestment over shareholder returns. This divergence may complicate efforts to standardize capital allocation policies across the industry.

Defense Spending Context

The debate occurs against a backdrop of surging defense expenditure. NATO allies have committed more than $1.21 trillion in additional defense spending since Trump's first term, including over $120 billion in new spending last year alone.

Contractors have secured significant awards amid this expansion. RTX recently landed a $22.9 billion Navy award to expand Tomahawk missile production, addressing stockpiles depleted by recent conflicts.

RTX closed 0.6% lower on Monday at $221.64 and fell 0.35% in early pre-market trading on Tuesday. Benzinga edge rankings show RTX's stock has a Momentum score in the 82nd percentile and a Growth score in the 43rd percentile.

The United States Department of Defense (DoD) has initiated a grand restocking process of munitions and weapons systems following extensive usage in Iran and Ukraine. The Trump administration has requested a $1.5 trillion Pentagon budget for fiscal 2027, allocating over half of these funds specifically toward replenishing depleted supplies. This substantial financial commitment creates a significant tailwind for defense contractors, yet the market has not fully priced in the potential growth for many companies in the sector.

Lockheed Martin Corp.

Lockheed Martin (NYSE: LMT) stands as the largest beneficiary of this rearmament phase, serving as the prime source for depleted THAAD interceptor missiles, GMLRS, and HIMARS rocket systems. Despite a nearly 20% decline in share price over the last three months, the company’s fundamental outlook remains strong. Its backlog stands at $186 billion and continues to expand, bolstered by a new seven-year, $35 billion DoD contract to restock THAAD interceptors. The stock currently trades at 16 times forward earnings and 1.5 times sales, a discount to the broader aerospace and defense industry.

RTX Corp.

RTX Corp. (NYSE: RTX) offers broad exposure to the rearmament theme through its extensive portfolio of DoD-favored munitions, including Patriot, Tomahawk, SM-3, SM-6, and Javelin missiles. The company holds a record $270 billion backlog, reflecting the exhaustion of supplies. During its Q1 2026 earnings report, management raised full-year 2026 EPS and sales guidance. RTX has grown revenue by nearly 10% year-over-year, leading to a higher trading multiple of 27 times forward earnings compared to peers.

General Dynamics Corp.

General Dynamics (NYSE: GD) supplies the Ordnance and Tactical Systems unit (GD-OTS), which produces the 155mm artillery shells critical to land warfare. The company reported 10% YoY revenue growth, demonstrating profitability beyond high-tech missile systems. Trading at 20 times forward earnings, the stock is cheaper than the industry average. General Dynamics is also a Dividend Aristocrat with a 1.83% yield, a 40% dividend payout ratio, and a 34-year history of annual payout increases.

L3Harris Technologies Inc.

L3Harris Technologies (NYSE: LHX) secured a significant deal with the DoD in April, involving over $1 billion invested in its Missile Solutions business through preferred stock. This division provides rocket propulsion systems for THAAD and Tomahawk missiles, benefiting from high demand regardless of the prime contractor. The company boasts a record $40 billion backlog and has raised its FY2026 EPS guidance. Despite shares falling more than 20% in the last six weeks, the stock presents a potential buying opportunity as it forms a bottom.

Kratos Defense and Security Solutions Inc.

Kratos Defense and Security Solutions (NASDAQ: KTOS) represents a high-risk, high-reward play within the sector. The company received a Space Force contract worth nearly $450 million in April, driving Q1 revenue up by more than 22% YoY. EPS came in at $0.16 against expectations of $0.13. However, the stock remains highly volatile, trading at 78 times forward earnings and nearly 7 times sales. After a 60% pullback from its January highs, JPMorgan recently upgraded the stock to Overweight with an $82 price target.