Warren Buffett's Big Bet on Lennar Highlights an Overlooked Metric Every Investor Should Watch

Key Points

• Shareholder yield doesn't get the attention it deserves.

• Lennar's shareholder yield is roughly three times higher than the S&P 500's.

• 10 stocks we like better than Lennar ›

Warren Buffett hasn't bought many stocks for Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) portfolio in the months leading up to his stepping down as CEO. Lennar (NYSE: LEN) (NYSE: LEN.B) is one notable exception, though.

The homebuilder, like Berkshire itself, has two share classes. Buffett loaded up on both stocks in the second quarter of 2025. Berkshire's stake in Lennar, including both class A and B shares, totals roughly $919 million. I think Buffett's big bet on Lennar highlights an often overlooked metric that every investor should watch.

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A metric that doesn't get the attention it deserves

Most investors are familiar with dividend yield, the ratio of a company's dividend payout to its market cap (or to its share price, if dividend payout per share is used). However, there's a somewhat similar metric that doesn't get the attention it deserves: shareholder yield.

What is shareholder yield? It measures the total cash a company returns to its shareholders as a percentage of its market cap (or share price). That cash includes three components:

• Dividends
• Stock buybacks
• Debt reduction

Stock buybacks are sometimes referred to as an "invisible dividend." Granted, repurchasing shares doesn't involve a distribution of cash to shareholders. But it does reduce the company's total outstanding shares and gives shareholders a greater stake in the business. Stock buybacks also boost earnings per share (even if profits don't increase), which can drive the share price higher.

Lennar's strong shareholder yield

Buffett's big investments in Lennar in Q2 should have drawn attention to the company's strong shareholder yield, in my opinion. But it didn't, at least not much.

Lennar paid a dividend of $0.50 per share in its fiscal third quarter, which ended Aug. 31, 2025. On an annualized basis, the company's dividend payout is $2 per share. That gives the homebuilder a dividend yield of around 1.6% -- respectable, but not anything to get excited about.

The company also repurchased 4.1 million shares for $507 million. Lennar bought back roughly $1.3 billion of its shares in the first two quarters of fiscal 2025. Assuming the company continues its stock buybacks at this pace, it should spend in the ballpark of $2.4 billion in the current fiscal year. That translates to over $9 per share in stock buybacks, with an estimated yield of around 7.1%.

Lennar hasn't reduced its debt, so that component of shareholder yield isn't applicable. If we add the company's dividend yield of 1.6% and its estimated stock buyback yield of 7.1%, Lennar's shareholder yield is 8.7%. To put that number into perspective, the shareholder yield of the S&P 500 (SNPINDEX: ^GSPC) is around 2.8%.

Is Lennar stock a buy?

Does Lennar's attractive shareholder yield automatically make the stock a buy? No, at least not by itself. A stock could theoretically offer an exceptionally high shareholder yield but still have underlying problems that make it worth avoiding. However, I don't think that's the case with Lennar.

Granted, the company faces some headwinds in the U.S. housing market. Lennar's fiscal Q3 revenue from home sales fell 9% year over year, mainly because of lower average sales prices of new homes. Its gross margins from home sales also tumbled to 17.5% from 22.5% in the prior-year period.

The good news, though, is that the average 30-year fixed-rate mortgage rate recently dropped to a three-year low. The Federal Reserve has hinted that more federal funds rate cuts are on the way, which could help bring mortgage rates down further. This improved rate environment will almost certainly benefit Lennar as more people can afford to buy homes.

Lennar's long-term prospects remain solid. The U.S. still has a housing shortage, with the U.S. Chamber of Commerce estimating that more than 4.7 million new homes are needed. Lennar's status as one of the nation's largest homebuilders puts it in a good position to address this issue.

Overall, I view Lennar as a good stock to buy right now. Its shareholder yield is just one of the reasons why.

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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Lennar. The Motley Fool has a disclosure policy.