Microsoft (NASDAQ: MSFT) co-founder Bill Gates, through the Bill & Melinda Gates Foundation, is one of the world’s biggest investors. The foundation currently has more than $16 billion invested, and its top holdings are a number of high-dividend stocks.
While it’s rarely wise to invest exactly as any one individual does, investors looking for solid dividend stocks could benefit from looking into the holdings of a high-profile investor such as Bill Gates. Here are three dividend stocks Bill Gates loves.
No. 1 Bill Gates Stock: UPS (NYSE: UPS)
As of Dec. 31, the Bill & Melinda Gates Foundation held 4.5 million shares of UPS worth approximately $435 million.
UPS is a global package delivery company. Its three core business segments are U.S. Domestic Package, International Package and Supply Chain & Freight. It offers freight services in approximately 195 countries throughout the world, and operates a fleet of approximately 110,000 package cars, vans, and other delivery vehicles, and owns 33,000 containers used to transport cargo in its aircraft.
One of the best aspects of the UPS business model is that there are extremely high barriers to entry. This is what Warren Buffett calls a wide economic “moat.” In a sense, UPS operates in a near-duopoly.
Last year, UPS achieved its highest-ever fourth-quarter earnings and then achieved record first-quarter profit in 2016. The company grew earnings per share by 14% in 2015, driven by growth across all three of its core segments.
UPS earnings per share rose 13% in the first quarter of 2016, driven by strong growth in the U.S. domestic and international small-package segments.
Such strong earnings fuel UPS’ attractive 3% dividend. It has either maintained or raised its dividend for more than 40 years. Since 2000, its dividend has more than quadrupled.
No. 2 Bill Gates Stock: Canadian National Railway (NYSE: CNI)
The Gates Foundation owns 17 million shares of Canadian National Railway worth approximately $1 billion.
Canadian National Railway is a major Canadian railroad operator. Its network of approximately 20,000 route miles of track spans Canada and parts of the U.S.
Last year, revenue and diluted earnings per share increased 3.9% and 14%, respectively, due primarily to higher freight revenue per carload, and the benefit of lower fuel prices. Canadian National Railway generated record full-year revenue, operating profit, net income, and earnings per share. In addition, it generated record annual free cash flow of $2.3 billion.
This allowed the company to increase its dividend payout by 25% last year, and it has already announced a 20% dividend increase for 2016.
The key operating advantage for Canadian National Railway is that it is more diversified than many U.S. railroads, many of which rely too heavily on coal. Last year, no individual commodity comprised more than 23% of Canadian National Railway’s total revenue.
It is also highly diversified geographically: 18% of revenues pertain to U.S. traffic, while 33% is trans-border, 18% relates to Canadian domestic traffic, and 31% is overseas traffic.
Moving forward, the company expects another very strong year in 2016. Management expects growth related to intermodal traffic, as well as commodities used for the U.S. housing construction and automotive industries.
No. 3 Bill Gates Stock: Waste Management (NYSE: WM)
Waste Management offers waste management and environmental services to residential, commercial, industrial, and municipal customers in North America.
As of Dec. 31, the Gates Foundation owned 18.6 million shares of Waste Management worth approximately $1 billion. It is the foundation’s second-largest position.
The reason is likely because Waste Management has a wide economic “moat,” meaning its industry has high barriers to entry. It is very difficult from a financial and regulatory perspective to enter the waste management industry.
This virtually ensures Waste Management will not be suddenly unseated by a smaller competitor, and that relative safety provides the company with steady profits. Its adjusted earnings grew 13% in fiscal year 2015, due to lower fuel expenses, and the benefits of share repurchases.
Waste Management expects 2016 fiscal year adjusted earnings per share to grow another 6% at the midpoint of its forecast.
That growth should be realized by continued expansion of the company’s recycling and solid waste businesses.
In February, Waste Management raised its dividend by 6%, which makes 13 consecutive years of dividend increases for the company.
What These 3 Stocks Have in Common
These three stocks have some key factors in common. First, they are all dividend stocks, and research has shown that dividends are historically a major component of shareholder return.
More importantly, these three companies have strong business models with entrenched leadership position in their industries. UPS, Canadian National Railway and Waste Management all have strong economic moats, and are not likely to have market share stolen by competitors any time soon.
These three Bill Gates stocks are strong candidates for risk-averse investors looking for steady dividends.
The Ghost of Steve Jobs
Before he died, Steve Jobs gave an interview to The New York Times where he revealed his desire for Apple to create something unlike anything the world had ever seen. Though Jobs is no longer around, his dream for this technology is alive and kicking. According to global consulting firm KPMG, this technology “could provide solutions to some of our most intractable social problems.” And Morgan Stanley believes it could save the American economy $1.3 trillion each year.