Bill Gates is the richest man in the world. The Bill & Melinda Gates Foundation has a massive $18.5 billion endowment.
That kind of wealth is something the vast majority of us can only dream of. However, there is one similarity between the everyday investor and the wealthiest person on the planet: We’re all looking for good stocks to buy and hold for the long-term.
Bill Gates is a personal friend of Warren Buffett, so it’s no surprise to see the Bill & Melinda Gates Foundation take a similar approach to investing as the Oracle of Omaha.
The Bill & Melinda Gates Foundation owns several highly profitable companies, with sustainable competitive advantages. Many of the stocks also pay dividends to shareholders, and grow their dividend payouts over time.
Without further ado, here are the top 16 stocks held by the Bill & Melinda Gates Foundation.
Table of Contents
You can skip to the analysis for each of Bill Gates’ 16 dividend stock holdings, with the table of contents below.
Stocks are listed in order of the portfolio’s largest positions to smallest positions.
- Berkshire Hathaway (BRK.B)
- Waste Management (WM)
- Canadian National Railway (CNI)
- Caterpillar (CAT)
- Wal-Mart (WMT)
- Ecolab (ECL)
- FedEx (FDX)
- Crown Castle International (CCI)
- United Parcel Service (UPS)
- Coca-Cola FEMSA SAB (KOF)
- Grupo Televisa SAB (TV)
- Walgreens Boots Alliance (WBA)
- Liberty Global Plc (LBTYK)
- AutoNation (AN)
- Liberty LiLak Group (LILAK)
- Arcos Dorados Holdings (ARCO)
Dividend Yield: N/A
Percentage of Bill Gates’ Portfolio: 58%
Price-to-Earnings Ratio: 17
Berkshire Hathaway stock takes up the majority of Bill Gates’ investment portfolio, and it is easy to see why. It’s safe to say the money is in good hands.
Berkshire, under the stewardship of Warren Buffett, grew from a struggling textile manufacturer, into one of the largest conglomerates in the world.
Since Berkshire’s current management team took the helm 51 years ago, the company’s per-share book value rose from $19 to $155,501, a rate of 19.2% compounded annually.
Today, Berkshire is a global giant. It owns and operates dozens of businesses, with a hand in nearly every major industry including insurance, railroads, energy, finance, manufacturing, and retailing.
A breakdown of Berkshire’s various operating segments is as follows:
- Sales and Services (51% of revenue)
- Insurance Premiums (20% of revenue)
- Railroad, Utilities, and Energy (19% of revenue)
- Interest, Dividend, and Other Investment Income (2% of revenue)
- Financial Product Sales (3% of revenue)
- Investment and Derivatives (5% of revenue)
In Berkshire’s annual letters to shareholders, Buffett typically evaluates the company’s performance in terms of book value. Book value is an accounting metric that measures a company’s assets minus its liabilities.
The resulting difference is a company’s book value. This is a proxy for the intrinsic value of a firm, which Buffett believes to be the most important financial metric.
Over the past five years, Berkshire has done a great job growing assets faster than liabilities, which builds shareholder wealth.
Source: 2015 Annual Report, page 36
Berkshire doesn’t pay a dividend to shareholders. Buffett and his partner Charlie Munger have always contended that they can create wealth at a higher rate than the dividend would provide to shareholders.
There are very few managers who can say that and get away with it, but Buffett and Munger might be the only two who can.
While Berkshire stock may not be attractive for investors who want dividend income, there are few companies that have a track record nearly as successful as Berkshire.
Dividend Yield: 2.4%
Percentage of Bill Gates’ Portfolio: 6.5%
Price-to-Earnings Ratio: 27
Waste Management is the embodiment of a company with a wide economic moat. It operates in waste removal and recycling services.
This is a highly-concentrated industry, with only a few companies controlling the majority of the market.
Waste Management services many different industry groups, which are organized as follows:
- Collection (55% of revenue)
- Landfill (19% of revenue)
- Transfer (9% of revenue)
- Recycling (8% of revenue)
- Other (9% of revenue)
The company is performing well right now. Over the first three quarters of 2016, revenue and earnings-per-share increased 3.6% and 8.8%, respectively.
Waste Management operates in a stable and necessary industry. In addition, waste removal is extremely capital-intensive, and is subject to significant regulatory oversight.
These competitive advantages allow Waste Management to generate steady profits, even when the U.S. economy enters recession.
Source: JP Morgan Industrials Conference presentation, page 14
Waste Management’s high margins and consistent cash flow put the company in strong financial position. It has reduced its debt significantly in the past several years.
Source: JP Morgan Industrials Conference presentation, page 17
With less debt to worry about, there is more cash flow left over each year. It uses this cash flow to invest in the business, and for shareholder cash returns.
Source: JP Morgan Industrials Conference presentation, page
On Dec. 15, the company raised its dividend by 4% and added $750 million to its share repurchase program.
Waste Management is a Dividend Achiever, a group of companies that have raised dividends for 10 years or more.
You can see the entire list of all 272 Dividend Achievers here.
For its part, Waste Management has increased its dividend for 14 consecutive years. The stock currently has a 2.5% dividend yield.
Waste Management isn’t a cheap stock. Its share price has soared over the past several years. But it still has an above-average dividend yield, and the company is growing.
#3-Canadian National Railway
Dividend Yield: 1.6%
Percentage of Bill Gates’ Portfolio: 6.1%
Price-to-Earnings Ratio: 20
Canadian National Railway is the only transcontinental railway in North America. It has a massive network, which includes more than 19,000 miles that spans Canada and the U.S.
Source: Investor Presentation, page 7
The company offers a full range of services including rail, intermodal, trucking, warehousing, and distribution.
Canadian National has an excellent business. From 2011-2015, it grew revenue and adjusted earnings-per-share at a 9% and 16% compound annual rate, respectively.
It generated this growth from executing a number of operational strategies. First, it placed focus on improving productivity.
Source: Investor Presentation, page 9
This has allowed the company to boost volumes and revenue.
Furthermore, Canadian National produces industry-leading margins, thanks to its lean cost structure.
Source: Investor Presentation, page 12
One factor negatively impacting the company right now is that it is exposed to commodities, specifically coal. Coal revenue declined 32% in the third quarter, year over year.
Moreover, revenue for energy and mining fell 13% and 20% last quarter, respectively.
That being said, the company’s diverse customer base and operational excellence more than offset the declines in its commodity-based segments.
Canadian National’s operating expenses declined 7% last quarter. Operating ratio reached a record 53.3% last quarter.
Free cash flow over the first three quarters of 2016 remained steady with the same nine-month period in 2015. The company expects to post flat adjusted earnings-per-share in 2016.
This in itself would