While the rest of the economy is booming with growth from artificial intelligence (AI) data centers, the housing sector is in trouble. Activity is down due to high mortgage rates, falling home prices, and low immigration, all headwinds for the sector. Two leading housing stocks, Liner(NYSE: LEN ) and Dr. Horton(NYSE: DHI)have seen their share prices fall 49% and 29%, respectively, to all-time highs due to these macroeconomic headwinds.
Earnings are expected to remain weak in 2026, but savvy long-term investors know that weakness in the market can be a great time to buy cyclical stocks from otherwise strong companies. Here’s why both of these homebuilders remain attractive dividend stocks you can buy today and keep in your portfolio forever.
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Lennar’s nearly 50% decline in the average sale price of its homes in the United States is exemplified by the boom and bust. Before the pandemic, Lennar’s average selling price (ASP) was just above $400,000, then peaked at $478,000 in 2021. to date? Even amid high inflation, its ASP has fallen from pre-pandemic levels to $376,000.
Along with rising equity costs, the lower ASP will affect Lennar’s profitability, with gross margins falling to 17.6% over the past 12 months compared to nearly 30% at its peak. This is likely due to high mortgage rates, which remain above 6%. Buying a home at this price is unaffordable for most Americans. To encourage buying, Lennar had to lower the selling price on the homes.
On top of this financial pressure, Lennar is affected by the current negative net migration to the United States. The fewer people who come into the country looking for housing, the less demand there is for certain types of housing, all else being equal.
While this may create temporary uncertainty, Leaner’s leadership position in housing should remain stable for the next decade. As of this writing, the stock trades on a price-to-earnings (P/E) ratio of just 12. Once mortgage rates, housing activity, and immigration violations ease, Lennar’s earnings should start growing again, making it a cheap contrarian stock for investors to buy now.
Like Lennar, DR Horton is a homebuilder that has been negatively affected by these macroeconomic shocks, with falling ASPs hurting its profits. Gross margin followed closely behind Lennar, although it had a higher construction profit margin due to its land-option business model rather than direct land purchases prior to construction. Its gross margin declined from 30% to 23.3% in the last 12 months due to falling ASP and rising inflation at the same time.
If we look at the financials of both DR Horton and Lennar, they offer value to shareholders who can see the forest through the trees. Both stocks generate positive free cash flow despite their rocky housing environment, although their different business models lead to different financial performance. The DR Horton Capital-Light Land option model has generated $3.5 billion in free cash flow over the past 12 months, while Lennar has lost $309 million due to its prior investments. However, Lennar is moving to a land option model to improve cash flow.
Over the long term, both stocks have consistently generated positive cash flow for shareholders, enabling them to return capital and increase dividend payments.
Through share repurchases, both companies implement a full dividend growth model. As a company buys back stock from existing shareholders, its dividend outstanding decreases, enabling it to support a higher dividend per share with the same nominal dividend commitment. In the past five years alone, both Lennar and DR Horton’s outstanding shares have fallen nearly 20%.
It’s the consistently declining number of shares that has helped both of these stocks become great dividend growers. Lennar’s earnings per share have increased 1,220% over the past 10 years, while DR Horton’s has risen 462%. As companies continue to repurchase stock at these discounted prices, management can continually increase dividend payouts to shareholders.
Once the housing market normalizes in the coming years, Lennar and DR Horton should see a strong recovery in earnings, making them a great buy accordingly. These are attractive dividend stocks that any investor will be happy to keep in their portfolio for the next decade.
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Brett Shaffer has no position in any of the stocks mentioned. The Motley Fool has positions and recommends DR Horton and Lennar. Motley Fool has a disclosure policy.
2 Great Dividend Stocks 27% and 47% to Buy and Hold Forever was originally published by The Motley Fool
