Bill Gates is the wealthiest man on the planet with a net worth in excess of $70 billion.
Just like you and I, Bill wants to earn a return on his pile of cash. Of the 15 publicly-traded companies held in the Bill & Melinda Gates Foundation Trust, 11 pay dividends.
Bill Gates’ portfolio is managed by Michael Larson, who has overseen Bill Gates’ personal wealth since 1994.
Bill Gates' Investment Strategy
Larson maintains a very low-key profile and runs a conservative strategy and invests across a wide range of assets including real estate, private equity, bonds, and publicly-traded stocks.
His operations are run out of an unmarked building in the Seattle suburb of Kirkland, and his employees who leave are typically required to sign confidentiality agreements.
According to the Wall Street Journal, Larson's relatively conservative strategy delivered losses during the financial crisis in 2008 that were less than the 27% drop in the Dow Jones Industrial Average.
Since 1995, Larson's returns have outperformed the S&P 500 by approximately 1% per year with presumably much lower volatility.
Larson is a value investor at heart and focuses on buy-and-hold investing. Most quarters, he does not make any trades. He looks for simple, high quality companies that he believes are reasonably priced. Most of these companies are considered blue-chip dividend stocks.
Few of these high quality businesses exist and trade at fair prices, which is why Bill Gates' portfolio of stocks is concentrated in a small handful of companies.
Analyzing Bill Gates' Portfolio of Dividend Stocks
I analyzed each of Bill Gates' stock picks that pay a dividend, starting with his highest-yielding dividend stocks.
For each investment held by Bill & Melinda Gates Foundation Trust, I review how the company makes money and why Bill Gates might have been attracted to the company.
My analysis of Bill Gates' portfolio is updated each quarter when new information about his holdings is released.
Investors might also be interested in reviewing Warren Buffett's top high-yield dividend stocks.
1: Caterpillar (CAT)
Percent of Bill Gates' Portfolio: 5.0%
Dividend Yield: 4.14% Forward P/E Ratio: 21.1x (as of 7/6/16)
Sector: Industrial Products Industry: Construction and Mining Machinery
Caterpillar primarily manufactures construction and mining equipment, diesel and gas engines, industrial turbines, and locomotives. Approximately 85% of the company's operating income comes from its Construction Industries and Energy & Transportation segments.
In addition to heavy equipment sales, Caterpillar generates a significant amount of revenue from higher-margin less volatile aftermarket parts and components. However, the company does not disclose how much revenue is from its aftermarket business.
The company is also very global with more than 60% of its sales generated outside of North America.
Caterpillar's competitive advantages are derived from its reputation for quality and global scale.
The company's success starts with its dealers. Caterpillar sells its products to dealers who sell them to end users across different markets. Caterpillar's global network of more than 175 independent dealers is second to none – the company's largest competitor (Komatsu) is about half of its size.
Having the biggest dealer network assures customers that their equipment will remain up and running. A machine that breaks can stop an entire job and make or break a project's financial and operational objectives.
Large dealers with plenty of parts and technicians are a key selling point for customers because they can respond more rapidly and cost-effectively to machine breakdowns.
Lower-priced Asian competitors lack a global dealer support network and have struggled to take share from Caterpillar. In fact, Caterpillar has increased its machine market share for five years in a row.
Caterpillar's dividend has also remained intact. The company has paid a dividend every quarter since 1933 and has raised its dividend for more than 20 consecutive years.
Despite the slump in commodity and construction markets, Caterpillar continues to appear reasonably positioned to continue paying dividends. Investors living off dividends in retirement might be interested in Caterpillar's high yield.
The company's free cash flow payout ratio sits near 50%, and the company maintains nearly $6 billion in cash on hand compared to total dividend payments of $1.8 billion last fiscal year.
Management last raised the dividend by 10% in the summer of 2015, but future increases are likely to be very moderate until end markets begin to recover.
Read More: Caterpillar – Dividend Stock Analysis
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2: Crown Castle (CCI)
Percent of Bill Gates' Portfolio: 2.7%
Dividend Yield: 3.47% Forward P/E Ratio: 23.1x (as of 7/6/16)
Sector: REIT Industry: Wireless Communications
Crown Castle is a real estate investment trust and the largest provider of shared wireless infrastructure in the U.S.
The company owns about 40,000 towers and 16,500 miles of fiber supporting small cell networks. Crown Castle leases its towers to wireless carriers, which use the company's infrastructure to provide wireless services to consumers and businesses.
Tenants deploy communications equipment, cables, and antennas on Crown Castle's towers that transmit signals between the tower and customers' mobile devices.
Approximately 90% of Crown Castle's revenue is generated from the big four wireless carriers, and the company is completely focused on the U.S. wireless market.
Crown Castle's business model has several appealing characteristics. First, its business model has excellent visibility.
Over 80% of the company's revenue is recurring, and most of its site rental revenue results from long-term leases with initial 10-year terms and five-year renewal periods thereafter.
Crown Castle's leases also have built-in price escalators, which have historically added around 3% to the company's annual earnings growth.
Most importantly, there are not viable substitutes for the company's wireless infrastructure today. Carriers need Crown Castle to operate their businesses, which has helped the company enjoy a non-renewal rate of just 2% over the last five years.
As data demand continues to increase, Crown Castle's earnings have solid growth potential as the company fills out more of its towers.
Crown Castle began paying dividends in early 2014 and has since raised its quarterly payout from 35 cents per share to 89 cents.
The company targets 6-7% long-term annual growth in dividends per share going forward and should have no problem hitting this goal.
Crown Castle's healthy dividend is supported by its reasonable dividend payout ratio and high incremental profit margins (adding more tenants to existing towers requires very little capital).
For investors seeking a high dividend growth REIT, Crown Castle is one to keep an eye on.
Read More: Crown Castle Dividend Stock Analysis
3: United Parcel Service (UPS)
Percent of Bill Gates' Portfolio: 2.8%
Dividend Yield: 2.88% Forward P/E Ratio: 18.8x (as of 7/6/16)
Sector: Transportation Industry: Air Freight Transport
UPS was founded in 1907 and has grown to become the world's largest package delivery company. In 2015, UPS delivered approximately 4.7 billion packages and documents in more than 220 countries and territories.
Domestic package delivery services account for just over 60% of total revenue. International package delivery services generated another 21% of revenues, and supply chain and freight businesses make up the remaining 16% of sales.
UPS's vast supply chain and logistics network