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Lennar Lures Investors With 213% Quarterly Dividend Hike

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Lennar Corporation (LEN - Free Report) recently announced a hike in dividend payout, maintaining its commitment of increasing stockholder returns. This hike is reflective of the homebuilder’s focus on operational excellence, land strategy and cash flow.

The company more than tripled (approximately 212.5%) quarterly dividend to 12.5 cents per share (50 cents annually) from 4 cents (16 cents annually). This new dividend, approved by the board of directors, will be paid on Feb 7, 2020 to its stockholders of record as of Jan 24. The dividend yield, based on the latest payout and Jan 9 closing market price, is approximately 0.87%.

What’s Driving the Dividend Policy?

Lennar’s business has been benefiting from solid demand for new homes, reflective of healthy housing market fundamentals stemming from low unemployment, higher wages and a decline in inventory levels.

Recently, Lennar reported strong fourth-quarter fiscal 2019 results. The company’s quarterly earnings surpassed the Zacks Consensus Estimate by 12.1% and jumped 15.8% from the year-ago profit level. The upside was mainly driven by higher deliveries and continued operating leverage, backed by technological efforts. Revenues also topped the consensus estimate by 4.9% and increased 7.9% year over year. Notably, new orders in the quarter increased 23.4% from the year-ago period to 13,089 homes. Potential value of net orders also increased 22.6% year over year to $5.16 billion.

Moreover, focus on lighter land strategy is enhancing free cash generation, which is being used to bolster the balance sheet, thereby mitigating risk and enabling it to opportunistically buy back shares, in turn boosting returns. The company expects to continue generating strong cash flow in fiscal 2020, and intends to utilize the cash to pay down debt and return capital to its shareholders while improving balance sheet, as it continues to improve shareholder returns.

Meanwhile, a glimpse of Lennar’s price performance reveals that it has outperformed the industry in the past six months. The stock has gained 21.1% compared with its industry’s 18% rally in the said period. Also, it has outperformed the S&P 500’s 9% rise in the said period. Earnings estimates for fiscal 2020 have moved 0.7% upward over the past 30 days to $6.03 per share. The company’s price performance was mainly driven by a solid earnings surprise history, having surpassed the Zacks Consensus Estimate in 12 of the trailing 14 quarters.

Zacks Rank & Key Picks

Currently, Lennar carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are M/I Homes, Inc. MHO, D.R. Horton, Inc. DHI and M.D.C. Holdings, Inc. MDC. While M/I Homes sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

M/I Homes’ earnings for 2020 are expected to increase 9%.

D.R. Horton and M.D.C. Holdings have a three-five year EPS growth rate of 28%, 11.8% and 10.3%, respectively.

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