Why Lockheed Martin Stock Wilted on Wednesday
Key Points
The defense sector has drawn the ire of President Trump.
In a Truth Social post, he expressed a wish to cancel shareholder-pleasing measures enacted by such businesses.
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Defense sector mainstay Lockheed Martin (NYSE: LMT) joined other industry stocks in trading down on Wednesday, with its share price slumping by almost 5%. The sectorwide rout was due to a new proposal from President Trump that would cancel certain shareholder-pleasing measures from such companies.
Trump's proposed restrictions
On his favored social media site Truth Social, Trump published several posts about his intended moves for the defense industry. In short, he aims to significantly increase this country's defense budget, while encouraging companies to produce more products faster. He also wants to curb dividend payouts and share repurchase programs.
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"MILITARY EQUIPMENT IS NOT BEING MADE FAST ENOUGH!" the President wrote rather dramatically in one post. "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."
Claiming that American defense contractors devote "massive" amounts of capital to dividends and share repurchases, Trump insisted that "This situation will no longer be allowed or tolerated!"
As an incumbent company in the industry, Lockheed Martin would be in the cross-hairs of such a radical adjustment, as would a host of other businesses in one of this country's largest sectors.
Storm in a teacup?
At least on paper, Trump doesn't have the power to unilaterally enact any of those measures. Still, the fact that he (and presumably at least some members of his administration) feel such industrial companies need to be curbed, cajoled, and more controlled is cause for at least some concern.
That said, I think what the President is proposing will meet with stiff resistance from not only company executives and shareholders, but also influential politicians on both sides of the aisle. If any measures are taken, I wouldn't expect them to be so drastic in the end.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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