This is another one of my irregular musings on individual stocks that I'm considering investing in. However, this time it's two stocks: LEN and LEN.B, the Class A and Class B shares respectively of Lennar Corp., which is a U.S. homebuilder.
First off, this is not an income stock in either class. It has a minuscule dividend, so if you do decide to invest in either of these, it'll be because you think it is a growth stock and/or that the stock is undervalued and will have some short term potential. But what makes the two stocks interesting is that despite paying the exact same dividend the Class B shares have ever since 2009 or so consistently traded at around a 20% discount to the Class A shares.
Like many companies with two classes of common stock, one is held mainly by the original founders and has significantly more voting power. In the case of Lennar, that's the Class B stock with 10 times the voting power of the Class A shares. There are some Class B shares on the open market, enuf that it too gets listed on the NYSE along with the Class A, but it's not nearly as liquid, nor are there enuf shares out there that an institutional investor would likely care to buy it. Before the financial crisis of 2007-9, the Class B shares traded a modest discount of a couple percent, but it spiked up to around a 40% difference back when it looked possible that Lennar would fail. (Class A shares have a slight degree of priority in a bankruptcy over Class B, but only if the remaining equity is only sufficient to pay back some but not all of the par value of the stock when liquidated.) There's no danger of bankruptcy right now unless the management has been cooking the books, so you'd think that the difference would return to only a few percent, but as I said, it's been pretty steady at roughly 20%.
So bottom line, if you are considering buying Lennar stock as a long-term individual investor, I recommend getting the Class B shares. The liquidity concern won't be a real issue unless you use market orders, which I don't recommend for any thinly traded stock. While the difference in dividend yield will be minor (currently 0.31% for Class A and 0.39% for Class B as of the close on August 17) it is there, so you might as well take advantage of it. The small difference in yield is probably a major factor in why the 20% difference has failed to close. The market is used to the gap being around 20%, so I doubt it'll change, but if it does, it'll be to narrow making that another reason to own the Class B. I wouldn't invest with the idea the gap will narrow any time soon, but if does, hooray!
(Disclosure: I do not currently own either stock, but I do have a
GTC order to buy some shares of LEN.B if the stock reaches what I think is a good price.)
