While some billionaires would rather 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 ran for a quarter of a century, but has cemented his place in history for his philanthropic and charitable work.
Gates is currently worth $131 billion (as of this writing), making him the world’s ninth richest person, according to Forbes. However, in a pact made with Warren Buffett, Gates signed The Giving Pledge and says he eventually plans to give away “virtually all” of his wealth to charitable causes.
The Bill & Melinda Gates Foundation (soon to be The Gates Foundation) is the vehicle created to support those charitable ventures. 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 paid out nearly $54 billion since 2000, in its bid to take on “the toughest, most important problems,” including disease and poverty around the globe.
The foundation’s trust holds stakes in dozens of companies in its portfolio, but 87% is made up of just these five stocks.
1. Microsoft: 35%
Investors shouldn’t be surprised that Microsoft stock is the trust’s top holding, especially since Gates established the foundation with a large portion of his personal holdings. The Gates Foundation has roughly 36.5 million shares worth $15.47 billion.
But this isn’t your grandfather’s Microsoft. Beyond the company’s legacy operating system and software, its Azure Cloud is the No. 2 cloud infrastructure provider and is growing faster and taking share from its cloud rivals.
Further boosting the results is Copilot, the company’s artificial intelligence (AI) powered digital assistant, which is deeply integrated across Microsoft’s products and services. Analysts at Evercore ISI calculate that generative AI could produce incremental revenue of $143 billion by 2027.
The trust gets reliable income thanks to the dividend Microsoft has paid consistently since 2004 while boosting its payout yearly since 2011. The seemingly paltry yield of 0.71% is a function of robust stock price gains of 226% over the past five years, far outpacing the 87% gains of the S&P 500. Furthermore, its payout ratio of less than 25% ensures there’s plenty of room for dividend growth in 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 ended 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 stock holdings in more than three dozen others — provide instant diversification, which makes 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 in cash and equivalents on its balance sheet, Berkshire is as rock-solid as it gets.
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 missive, Buffett said these companies “performed exceptionally well last year, setting records in sales, float, and underwriting profits.” In all, 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 that Buffett and Gates have in common is an appreciation of boring companies with predictable, recurring businesses. It’s hard to find a business that fits this description better than waste, trash, and garbage removal — 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 likely why the Gates Trust has more than 35.2 million shares worth $7.1 billion.
Refuse and recycling collection are the mainstays of its business, which continues regardless of the economy. This helped the company deliver robust results and higher margins despite the recent downturn.
Waste Management is also looking to expand. The company recently announced its intention to acquire medical-waste services provider Stericycle for $7.2 billion. This will help the company extend its reach in environmental solutions.
Its solid and reliable dividend is a boon to the trust. Waste Management has boosted its payout for 15 consecutive years, with a current yield of 1.5%. And with a payout ratio of less than 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 case, saying railroads transported goods “in a very cost-effective way … they do it in an extraordinarily environmentally friendly way … [releasing] far fewer pollutants into the atmosphere.”
Given their long association and similar views, it isn’t surprising that the Gates Trust would own 54.8 million shares of Canadian National Railway (NYSE: CNI) worth nearly $6.97 billion.
Canadian National holds the distinction of being the only transcontinental railroad in North America, connecting the Pacific Coast, Atlantic Coast, and the Gulf of Mexico. Furthermore, railroads are four times more fuel efficient than over-the-road trucks, which reduces greenhouse gas emissions by 75%. Despite recent weakness, the improving economy and increasing volume in 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 a great deal of upside potential.
5. Caterpillar: 5%
The trust’s fifth-largest holding is another iconic business. As the world’s leading provider 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. The Gates Trust holds more than 7.3 million shares valued at more than $2.4 billion.
While Caterpillar’s sales are currently flat year over year, cost controls are boosting margins, helping increase its profitability.
Let’s not forget Caterpillar’s strong dividend history, which helps augment the trust’s returns. The company has paid a dividend every year since it was formed in 1925, a quarterly payout every year since 1933, and increases every year going back 30 years. The dividend has a current yield of 1.6%, and with a payout ratio of just 23%, there’s plenty of opportunity for more increases.
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Danny Vena has positions in Canadian National Railway and Microsoft. The Motley Fool has positions in 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
