Defense contractors could face new restrictions on stock buybacks, dividend payments, and other shareholder distributions under a provision included in a defense policy bill approved by the Senate Armed Services Committee last week.

The proposal was included in the committee's draft of the National Defense Authorization Act, Congress' annual defense policy bill, which lawmakers approved on an 18-9 vote during a closed-door session.

Under the provision, the War Department would be prohibited from entering into contracts for goods or services with companies that purchase equity securities, pay dividends or make other capital distributions to shareholders unless they receive a waiver from the secretary of defense.

The proposal comes as lawmakers increasingly scrutinize how defense contractors use profits earned from Pentagon contracts amid concerns about weapons production capacity and military readiness.

If enacted, the restriction could affect a broad range of defense firms, including major publicly traded contractors that routinely return cash to investors through dividends and stock repurchase programs.

The legislation would allow the defense secretary to grant waivers, though it does not specify the circumstances under which exemptions could be approved.

The measure represents a significant shift in federal contracting policy and could spark opposition from industry groups, which have traditionally argued that decisions about dividends and capital allocation should remain with corporate management and shareholders.

The NDAA must still be considered by the full Senate and reconciled with House legislation before a final bill can be sent to the president for signature.

Congress has passed the NDAA annually for more than six decades, making it one of the most consistently enacted pieces of legislation on Capitol Hill.