Finance
Billionaire investor Bill Gates has 87% of his $45 billion portfolio in just five stocks
While some billionaires prefer to avoid the spotlight, Bill Gates is cut from a different cloth. He is best known as the co-founder and former CEO of Microsoft (NASDAQ: MSFT)which he led for a quarter of a century, but which has cemented his place in history because of his philanthropic and charitable work.
Gates is currently worth $131 billion (at the time of writing), making him the ninth richest person in the world, according to him. Forbes. However, in a pact with Warren Buffett, Gates signed The Giving Pledge and says he eventually plans to give away “substantially all” of his wealth to charity.
The Bill & Melinda Gates Foundation (soon to be The Gates Foundation) is the vehicle created to support these charitable projects. Its stated goal is “to create a world where every person has the opportunity to live a healthy, productive life.”
To that end, the foundation has disbursed nearly $54 billion since 2000 in its effort to tackle “the toughest and most important problems,” including disease and poverty around the world.
The foundation’s trust has stakes in dozens of companies in its portfolio, but 87% consists of just these five stocks.
1. Microsoft: 35%
Investors shouldn’t be surprised that Microsoft stock is the trust’s main holding, especially since Gates created the foundation with much of his personal assets. The Gates Foundation holds approximately 36.5 million shares worth $15.47 billion.
But this isn’t your grandfather’s Microsoft. Besides the company’s legacy operating system and software, the Azure Cloud is the No. 2 cloud infrastructure provider. It is growing faster and taking market share from its cloud rivals.
Further boosting the results is the company’s Copilot artificial intelligence (AI) powered digital assistant, which is deeply integrated into Microsoft products and services. Analysts at Evercore ISI calculate that generative AI could generate incremental revenue of $143 billion by 2027.
The trust receives reliable income from the dividend Microsoft has paid consistently since 2004, while the payout has been increased annually since 2011. The seemingly paltry 0.71% return is a function of the robust stock price gains of 226% over the past five years, which well exceed expected gains. 87% profit from the S&P500. Being further payout ratio of less than 25% ensures that there is sufficient room for dividend growth in the coming years.
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, a stake worth nearly $7.1 billion.
Berkshire Hathaway’s business interests – including 67 subsidiaries and stock ownership in more than three dozen others – provide immediate 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.
Furthermore, with a record $189 billion of cash and equivalents on its balance sheet, Berkshire is as solid 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 mission, Buffett said these companies “performed exceptionally well over the past year, setting records for revenue, float and underwriting gains.” In total, insurance subsidiaries accounted for 40% of Berkshire’s $37 billion in operating revenues.
This underlines why Berkshire shares are still among Gates’ largest holdings.
3. Waste management: 16%
Another thing that Buffett and Gates have in common is an appreciation for boring businesses with predictable, recurring businesses. It’s hard to find a company that fits this description better than Waste, Waste and Garbage Removal – and none is bigger than Waste management (NYSE: WM). One man’s trash is another man’s treasure, as the saying goes. That’s probably why the Gates Trust has more than 35.2 million shares worth $7.1 billion.
Waste and recycling collection are the pillars of its activities, which continue regardless of the economy. This helped the company achieve robust results and higher margins despite the recent recession.
Waste management also wants to expand. The company recently announced its intention to acquire a medical waste service provider Sterifiets for $7.2 billion. This will help the company expand its reach in environmental solutions.
The solid and reliable dividend is a boon for confidence. Waste Management has increased its payout for 15 years in a row, with a current yield of 1.5%. And with a payout ratio of less than 47%, there is plenty of room to continue these increases.
4. Canadian National Railway: 15%
Gates and Buffett also share their appreciation for railroads. When Berkshire Hathaway acquired Burlington Northern Santa Fe in 2009, Buffett made a compelling case, saying that railroads were moving freight “in a very cost-effective way… they’re doing it in an extremely environmentally friendly way… [releasing] far fewer pollutants are released into the atmosphere.”
Given their long association and similar views, it is not surprising that the Gates Trust would own 54.8 million shares. Canadian National Railway (NYSE: CNI) worth almost $6.97 billion.
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. In addition, railroads are four times more fuel efficient than regular trucks, reducing greenhouse gas emissions by 75%. Despite the recent weakness, the improving economy and increasing rail traffic volume 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 38% payout ratio is the definition of sustainable, with plenty of upside potential.
5. Caterpillar: 5%
The trust’s fifth largest holding is another iconic company. As the world’s leading supplier of construction and mining equipment, Caterpillar (NYSE: KAT) has been burdened by an uncertain economy in recent months.
However, the company’s strength lies in the diversity of its business activities, which also include industrial gas turbines, diesel-electric locomotives and diesel and natural gas engines. The Gates Trust owns more than 7.3 million shares worth more than $2.4 billion.
While Caterpillar’s sales are currently flat year over year, cost controls are driving margins up, driving profitability.
Let’s not forget Caterpillar’s strong dividend history, which helps boost the trust’s returns. The company has paid a dividend every year since its founding in 1925, a dividend every year since 1933, and has increased every year for thirty years thereafter. 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 holds positions at Canadian National Railway and Microsoft. The Motley Fool holds positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Canadian National Railway and Waste Management. The Motley Fool has one disclosure policy.
Billionaire investor Bill Gates has 87% of his $45 billion portfolio in just five stocks was originally published by The Motley Fool
