While some billionaires prefer to avoid the spotlight, Bill Gates is built differently. He is best known as co-founder and former CEO of microsoft (NASDAQ:MSFT)which he led for a quarter of a century, but which has cemented its place in history for its philanthropic and charitable work.
Gates is currently worth $131 billion (as of this writing), making him the ninth richest person in the world, according to Forbes. However, in a pact made with Warren Buffett, Gates signed The Giving Pledge and says he eventually plans to donate “virtually all” of his wealth to charitable causes.
The Bill & Melinda Gates Foundation (soon to become the Gates Foundation) is the vehicle created to support these charitable initiatives. Its stated goal is to “create a world where every person has the opportunity to live a healthy and productive life.”
To that end, the foundation has paid out nearly $54 billion since 2000 as it seeks to address “the toughest and most important problems,” including disease and poverty around the world.
The foundation trust has stakes in dozens of companies in its portfolio, but 87% is made up of just these five stocks.
1.Microsoft: 35%
Investors should not be surprised that Microsoft shares are the trust’s largest holding, especially since Gates established the foundation with a large portion of his personal holdings. The Gates Foundation has approximately 36.5 million shares worth $15.47 billion.
But this isn’t your grandfather’s Microsoft. Beyond the company’s legacy software and operating system, its Azure Cloud is the second-largest cloud infrastructure provider and is growing faster and gaining share from its cloud rivals.
Further improving the results is Copilot, the company’s artificial intelligence (AI)-powered digital assistant, which is deeply integrated into all Microsoft products and services. Analysts at Evercore ISI estimate that generative AI could produce incremental revenues of $143 billion by 2027.
The trust earns reliable income from the dividend Microsoft has paid consistently since 2004, while increasing its payout annually since 2011. The seemingly paltry 0.71% yield is a function of strong share price gains of 226% in the last five years, far exceeding the 87% profits of the S&P 500. Plus, its payout ratio of less than 25% ensures there’s plenty of room for dividend growth in the years to come.
2. Berkshire Hathaway: 16%
The trust’s second largest holding is Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), thanks in large part to billionaire CEO Warren Buffett’s promise to donate his vast fortune to charity. In the 16 years ending in 2022 (the last time details were provided), Buffett’s contributions totaled $36 billion. As a result, the trust currently owns more than 17.3 million Berkshire shares in a stake valued at nearly $7.1 billion.
Berkshire Hathaway’s business interests, which include 67 subsidiary companies and equity stakes in more than three dozen others, provide instant diversification, making it an attractive investment vehicle until the funds are needed. Last year, Berkshire generated revenue that grew 20% year over year to $364 billion and net income of $97 billion.
Plus, with a record $189 billion in cash and equivalents on its balance sheet, Berkshire is as strong as they come.
Last year set a record for Berkshire’s portfolio of insurance companies, including National Indemnity, GEICO, General Re, Berkshire Hathaway Reinsurance and Alleghany. In Berkshire’s year-end letter, Buffett said these companies “performed exceptionally well last year, setting records for sales, float and underwriting earnings.” In total, its insurance subsidiaries accounted for 40% of Berkshire’s operating income of $37 billion.
This underscores why Berkshire stock remains among Gates’ largest holdings.
3. Waste management: 16%
Another thing Buffett and Gates have in common is an appreciation for boring companies with predictable, recurring business. It’s hard to find a business that fits this description better than waste and garbage collection, and no one is bigger than Waste management (NYSE: WM). One man’s trash is another man’s treasure, or so the saying goes, which is why the Gates Trust has more than 35.2 million shares worth $7.1 billion.
Garbage collection and recycling are the pillars of their business, which continues regardless of the economy. This helped the company deliver strong results and higher margins despite the recent recession.
Waste Management is also looking to expand. The company recently announced its intention to acquire the medical waste services provider. stericycle for 7.2 billion dollars. This will help the company expand its reach in environmental solutions.
Its solid and reliable dividend is a boon for confidence. Waste Management has been increasing its payout for 15 consecutive years, with a current profitability of 1.5%. And with a payout ratio below 47%, there’s plenty of room for those increases to continue.
4. Canadian National Railway: 15%
Gates and Buffett also share an appreciation for railroads. When Berkshire Hathaway acquired Burlington Northern Santa Fe in 2009, Buffett made a compelling argument, saying that railroads moved freight “in a very profitable way…they do it in an extraordinarily environmentally friendly way… [releasing] much less polluting to the atmosphere”.
Given their long association and similar views, it is not surprising that Gates Trust owns 54.8 million shares of Canadian National Railway (NYSE: CNI) valued at almost 6.97 billion dollars.
Canadian National has the distinction of being the only transcontinental railroad in North America, connecting the Pacific Coast, the Atlantic Coast and the Gulf of Mexico. Additionally, railways consume four times more fuel than trucks, reducing greenhouse gas emissions by 75%. Despite recent weakness, the improving economy and growing volume of rail traffic bode well for the company’s long-term success.
Canadian National also pays a dividend with a solid track record, with continuous payments since 2011. It has a current yield of 1.9% and its payout ratio of 38% is the definition of sustainable, with plenty of growth potential.
5. Caterpillar: 5%
The trust’s fifth-largest holding is another iconic business. As a leading global supplier of construction and mining equipment, Caterpillar (NYSE: CAT) has been weighed down in recent months by an uncertain economy.
However, the company’s strength lies in the diversity of its business lines, which also include industrial gas turbines, diesel-electric locomotives, and diesel and natural gas engines. Gates Trust owns more than 7.3 million shares valued at more than $2.4 billion.
While Caterpillar’s sales are currently stable year over year, cost controls are boosting margins, helping to increase its profitability.
Let’s not forget Caterpillar’s strong dividend track record, which helps boost the trust’s returns. The company has paid a dividend each year since it was formed in 1925, a quarterly payment each year since 1933 and has increased each year for 30 years. The dividend has a current yield of 1.6%, and with a payout ratio of just 23%, there is plenty of opportunity for further increases.
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Danny Vena has positions at Canadian National Railway and Microsoft. The Motley Fool has positions and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Canadian National Railway and Waste Management. The Motley Fool has a disclosure policy.
Billionaire Investor Bill Gates Has 87% of His $45 Billion Portfolio in Just 5 Stocks was originally published by The Motley Fool