What Trump's plan to ban defense dividends and raise the military budget could mean for your portfolio

• President Donald Trump has sent defense stocks on a roller coaster ride in the last two days.
• Trump signed an EO banning dividend payments from defense firms. He also called for a huge increase in military spending.
• Here's what the latest developments in the defense sector might mean for your portfolio.

Donald Trump sent defense stocks on a roller coaster ride this week, and his recent executive orders on defense firms and his calls for more defense spending could impact investors' portfolios.

The president signed an order aimed at restricting some financial behavior among defense contractors, including an executive order that bans defense firms from issuing dividend payments and doing stock buybacks until they deliver a "superior product." Meanwhile, Trump said on Wednesday that he wants the US military budget could raised to a record $1.5 trillion next year.

Both developments have implications for investors who have money in the defense sector, which is known for paying relatively high dividends. Lockheed Martin, for instance, has an annual dividend yield of around 2%, compared to about 1% for the broader S&P 500.

Here's the rundown of how investors should be thinking about the latest news — and what it means for their portfolios.

Don't dump your defense stocks…

For the most part, investors shouldn't be thinking about their long-term investments too differently. Trump's push to ban dividend payments seems largely hypothetical, and it's unclear how the president will enforce such a rule, said Art Hogan, the chief market strategist at B. Riley Wealth Management.

"It feels as though this was making another random social media announcement that will likely die on the vine," Hogan told Business Insider. "I don't know you need to make a rush to judgment in terms of changing your long-term investment plans."

Besides the threat of barring dividend payments, Trump's announcements on social media seem largely positive for defense investors, José Torres, a senior economist at Interactive Brokers, said. He added that those who aren't dependent on dividend payments should remain invested in the sector, pointing to the potential for growth.

"I think that investors can look forward to improved quality from those companies, in the best-case scenario," he told BI.

…But if you care about dividends, maybe explore other sectors

If defense companies fall in line and pause dividend payments, that could hurt investors who specifically hold dividend-paying stocks for regular income, Torres said.

But those investors can move to other dividend-paying areas of the market. Torres encouraged investors to consider value sectors with high dividend yields, such as energy and healthcare.

B. Riley's Hogan encouraged investors to consider areas like energy, consumer staples, pharmaceuticals, utilities, and other parts of the industrial sector, a broader umbrella that covers defense stocks.

Dividend ETFs, which track a basket of dividend-paying companies, are also an option for investors chasing dividends, he added.

"There's a lot of dividend darlings for sure," Hogan said. "I think investors, if in fact they feel nervous about the potential for dividend cuts or the removal of dividends in any space, as unlikely as that prospect seems, there are ways to navigate around that."

Examine your bond holdings

Investors should be watching their bond investments, Peter Berezin, the chief market strategist at BCA Research, said.

Berezin said that the significant increase in defense spending could lead to a rise in bond yields, which would mean bond prices could fall.

Interactive Brokers' Torres also said he believed bond investors should "absolutely" be concerned about the more robust military budget, which could raise long-end bond yields in particular.

Long-end bond yields have climbed in recent years as concerns have risen about the US deficit and rising levels of government debt. Higher debt levels make investors more wary of purchasing long-term US Treasurys, which means yields need to rise to attract investors. Heavy borrowing and spending are also inflationary, which could push yields higher down the road as the central bank adjusts monetary policy to keep prices under control.

Torres didn't recommend selling bonds at the moment. He believes concerns around debt have caused long-end bond yields in the US to be "too high," and he expects those yields to ease soon.

"I'm a bond bull at this juncture," he said.