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Bill Gates' Dividend Portfolio

Bill Gates is the second wealthiest man on the planet with a net worth in excess of $100 billion.

Just like you and me, Bill wants to earn a return on his pile of cash. Of the 14 publicly-traded companies held in the Bill & Melinda Gates Foundation Trust, 11 pay dividends.

You can download an up-to-date list covering all of the dividend stocks owned by Bill Gates by clicking here.

In this article, I track and analyze changes in Bill Gates’ portfolio of dividend stocks.

Like most periods, the fourth quarter of 2019 was uneventful for the trust. No new holdings were added, and the trust's core holdings were largely unchanged. 

The only notable move was a 9% decrease in its shares of Berkshire Hathaway (BRK.B). The trust’s stake in Warren Buffett’s company has fluctuated most quarters, so these trades are likely being driven by non-fundamental reasons (tax purposes, charity donations, etc.).

Before analyzing the portfolio’s holdings, let’s review the trust’s investment strategy.

Bill Gates’ portfolio is managed by Michael Larson, who has overseen Bill Gates’ personal wealth since 1994.

Bill Gates’ Investment Strategy

Larson maintains a very low-key profile and runs a conservative strategy and invests across a wide range of assets including real estate, private equity, bonds, and publicly-traded stocks.

His operations are run out of an unmarked building in the Seattle suburb of Kirkland, and his employees who leave are typically required to sign confidentiality agreements.

According to the Wall Street Journal
, Larson’s relatively conservative strategy delivered losses during the financial crisis in 2008 that were less than the 27% drop in the Dow Jones Industrial Average.

Since 1995, Larson’s returns have outperformed the S&P 500 by approximately 1% per year with presumably much lower volatility.

Larson is a value investor at heart and focuses on buy-and-hold investing. Most quarters, he does not make any trades. He looks for simple, high quality companies that he believes are reasonably priced. Most of these companies are considered blue-chip dividend stocks.

Few of these high quality businesses exist and trade at fair prices, which is why Bill Gates’ portfolio of stocks is concentrated in a small handful of companies.

Analyzing Bill Gates’ Portfolio of Dividend Stocks

I analyzed each of Bill Gates’ stock picks that pay a dividend, starting with his highest-yielding dividend stocks.

For each investment held by Bill & Melinda Gates Foundation Trust, I review how the company makes money and why Bill Gates might have been attracted to the company.

My analysis of Bill Gates’ portfolio is updated each quarter when new information about his holdings is released.

March 2020 Portfolio Update

True to his buy-and-hold philosophy, Michael Larson turned in another uneventful quarter.

The Bill & Melinda Gates Foundation Trust only made three transactions, exiting stakes disclosed in the prior quarter in Beyond Meat and Cornerstone Building Brands and moving shares around in Berkshire Hathaway (likely for estate planning purposes).

Otherwise, Larson's last notable move came during the second quarter of 2019 when he exited his stake in Walgreens Boots Alliance (WBA), which he had held since the fourth quarter of 2014.

As we discussed in April 2019, Walgreens' business is under pressure on several fronts. The firm's same-store retail sales have declined for over two years as more shopping heads online, and lower drug reimbursement rates are now hurting Walgreens' pharmacy business. 

Walgreens hopes to return its business to bottom line growth after this fiscal year by taking more costs out of its business, continuing to consolidate the pharmacy chain industry, and investing more in store improvements.  

Rising healthcare costs have created a big push from both private and public payers to slash costs throughout the medical supply chain, sending ripples throughout the healthcare chain. 

While you can never for sure why an investment manager might have sold a position, it would seem that Bill Gates' trust is no longer optimistic about Walgreens' ability to return to long-term profitable growth as the industry evolves.

Looking across all of the trust's holdings, United Parcel Service remains the highest-yielding stock in Bill Gates’ portfolio, followed by United Parcel Service and Coca-Cola FEMSA.

Let’s take a closer look at Bill Gates’ dividend stocks:

1: United Parcel Service (UPS)
Percent of Bill Gates’ Portfolio: 2.5%
Dividend Yield: 4.4%   Forward P/E Ratio: 11.7x   (as of 3/2/20)
Sector: Transportation   Industry: Air Freight Transport

UPS was founded in 1907 and has grown to become the world’s largest package delivery company. In fact, UPS delivers 20 million packages and documents each day to around 10 million customers located in more than 220 countries and territories.

Domestic package delivery services account for just over 60% of total revenue. International package delivery services generated another 21% of revenues, and supply chain and freight businesses make up the remaining 16% of sales.

UPS’s vast supply chain and logistics network creates a durable competitive advantage. The company has a global fleet of more than 120,000 cars, vans, tractors, and motorcycles to accompany over 550 aircraft it uses to make efficient and reliable deliveries.

The firm also has nearly 5,000 UPS Stores, over 38,000 UPS Drop Boxes, and more than 24,000 UPS Access Point locations. Thousands of touch points and various delivery modes allow UPS to more efficiently deliver packages than smaller rivals.

Replicating the company’s assets would be extremely expensive and take years of time. Furthermore, new competitors would lack the shipping volumes needed to cover the costs of such a large delivery network.

It’s hard to imagine a new company beating the convenience and low-cost shipping benefits offered by UPS. UPS should also benefit from e-commerce growth as more packages need to be shipped around the world, even if Amazon successfully launches its own delivery service for businesses.

UPS has paid uninterrupted dividends for more than four decades and raised its dividend every year since 2010. The company’s dividend has more than quadrupled since 2000.

Management has historically increased the dividend by 8-9% per year over the last decade, and UPS’s healthy payout ratio near 50% provides room for continued dividend growth.

Read More: Our Analysis of United Parcel Service

2: Crown Castle International (CCI)
Percent of Bill Gates’ Portfolio: 3.6%
Dividend Yield: 3.1%   Forward P/AFFO Ratio: 24.8x   (as of 3/2/20)
Sector: Real Estate   Industry: Wireless Communications

Crown Castle International is a real estate investment trust and the largest provider of shared wireless infrastructure in the U.S.

The company owns approximately 40,000 towers and more than 60,000 miles of fiber that supports small cell networks.

Crown Castle leases its towers to wireless carriers, which use the company’s infrastructure to provide wireless services to consumers and businesses.

Tenants deploy communications equipment, cables, and antennas on Crown Castle’s towers that transmit signals between the tower and customers’ mobile devices.

Approximately 90% of Crown Castle’s revenue is generated from the big four wireless carriers, and the company is completely focused on the U.S. wireless market.

Crown Castle’s business model has several appealing characteristics. First, its business model has excellent visibility.

Over 80% of the company’s revenue is recurring, and most of its site rental revenue results from long-term leases with initial 10-year terms and five-year renewal periods thereafter.

Crown Castle’s leases also have built-in price escalators, which have historically added around 3% to the company’s annual earnings growth.

Most importantly, there are not viable substitutes for the company’s wireless infrastructure today. Carriers need Crown Castle to operate their businesses, which has helped the company enjoy a non-renewal rate of just 2% over the last five years.

As data demand continues to increase, Crown Castle’s earnings have solid growth potential as the company fills out more of its towers.

Crown Castle began paying dividends in early 2014 and has since more than tripled its quarterly payout from 35 cents per share to $1.20.

The company targets 7% to 8% long-term annual growth in dividends per share going forward and should seemingly have little problem hitting this goal.

Crown Castle’s healthy dividend is supported by its reasonable dividend payout ratio and high incremental profit margins (adding more tenants to existing towers requires very little capital).

For investors seeking a high dividend growth REIT, Crown Castle is one to keep an eye on. American Tower (AMT) has many similarities but is much more international and targets 20% annual dividend growth. You can learn more about American Tower here.

Read More: Our Analysis of Crown Castle

3: Caterpillar (CAT)
Percent of Bill Gates’ Portfolio: 7.8%
Dividend Yield: 3.3%   Forward P/E Ratio: 13.6x   (as of 3/2/20)
Sector: Industrial Products   Industry: Construction and Mining Machinery

Caterpillar primarily manufactures construction and mining equipment, diesel and gas engines, industrial turbines, and locomotives. Approximately 85% of the company’s operating income comes from its Construction Industries and Energy & Transportation segments.

In addition to heavy equipment sales, Caterpillar generates a significant amount of revenue from higher-margin less volatile aftermarket parts and components. However, the company does not disclose how much revenue is from its aftermarket business.

The company is also very global with more than 50% of its sales generated outside of North America.

Caterpillar’s competitive advantages are derived from its reputation for quality and global scale.

The company’s success starts with its dealers. Caterpillar sells its products to dealers who sell them to end users across different markets. Caterpillar’s global network of more than 175 independent dealers is second to none – the company’s largest competitor (Komatsu) is about half of its size.

Having the biggest dealer network assures customers that their equipment will remain up and running. A machine that breaks can stop an entire job and make or break a project’s financial and operational objectives.

Large dealers with plenty of parts and technicians are a key selling point for customers because they can respond more rapidly and cost-effectively to machine breakdowns.

Lower-priced Asian competitors lack a global dealer support network and have struggled to take share from Caterpillar. In fact, Caterpillar has increased its machine market share for five years in a row.

Caterpillar’s dividend has also remained intact for now despite the commodity slump in recent years. The company has paid a dividend every quarter since 1933 and has raised its dividend for more than 20 consecutive years.

After a two-year freeze, management finally began raising the dividend again by in mid-2017. While this business will remain sensitive to the global economy, commodity prices, and global infrastructure spending, management runs the business conservatively and seems likely to keep Caterpillar's payout safe throughout the various economic cycles. 

Read More: Our Analysis of Caterpillar

4: Coca-Cola FEMSA (KOF)
Percent of Bill Gates’ Portfolio: 1.8%
Dividend Yield: 3.2%   Forward P/E Ratio: 14.9x   (as of 3/2/20)
Sector: Consumer Staples   Industry: Soft Drinks

Coca-Cola FEMSA began operations in 1890 and is the largest franchised company bottling Coca-Cola products. The company bottles more than 100 brands of beverages and serves over 350 million consumers. Sparkling beverages account for close to 80% of total volume.

Coca-Cola FEMSA primarily operates in Latin America and Southeast Asia and accounts for one of every eight Coca-Cola products sold around the world. Coca-Cola (KO) owns approximately 28% of the company.

Coca-Cola FEMSA was likely an attractive investment for Bill & Melinda Gates Foundation Trust because it is clearly a durable business with more than 125 years of operating history. The company benefits from selling Coca-Cola branded products and is an essential partner for Coke.

As the largest bottler, Coca-Cola FEMSA has the necessary economies of scale to efficiently produce and distribute beverages for Coke.

The company’s geographic footprint also offers one of the most attractive growth opportunities in the beverage industry because of its concentration in developing economies.

As consumption rises across Mexico and Latin America, Coca-Cola FEMSA’s volumes should rise. Additionally, bottling operations will likely continue to consolidate to make them more productive, providing further opportunities for volume growth.

Coca-Cola FEMSA has paid dividends for more than 20 years and increased its dividend by approximately 19% per year over the company’s last decade. However, its semiannual payout has remained about flat in recent years. 

With a healthy free cash flow payout ratio near 60%, consistent free cash flow generation, and a reasonable balance sheet, the company’s dividend appears to be safe with room to grow over the long term. 

5: Walmart (WMT)
Percent of Bill Gates’ Portfolio: 6.5%
Dividend Yield: 1.9%   Forward P/E Ratio: 22.4x   (as of 3/2/20)
Sector: Consumer Discretionary   Industry: Supermarkets

As the largest brick-and-mortar retailer in the world, Walmart hardly needs an introduction. The company’s general merchandise stores serve more than 260 million customers. Walmart’s largest product categories are grocery (56% of U.S. sales), health & wellness (11%), and general merchandise (33%).

Walmart has over 11,000 stores located across 27 countries and generates about 40% of its sales outside of the U.S. with Mexico, Latin America, and Brazil accounting for the majority of its international business.

Walmart’s moat is driven by the company’s sheer size. With more than $485 billion in sales last fiscal year, Walmart has the purchasing power necessary to be the genuine price leader in many merchandise categories. Few companies will be able to compete with Walmart’s scale in the brick-and-mortar space.

Walmart’s ability to manage its large size is another advantage. With millions of SKUs and operations spanning the globe, finding qualified suppliers and sourcing its products are no small feats. The company’s strategically located distribution facilities and supply chain know-how give it an edge.

The company’s brand recognition is another competitive advantage. Consumers associate Walmart with value and are likely located within a reasonable distance of one of the companies’ stores.

Conservative investors can also appreciate the non-discretionary mix of Walmart’s business. Grocery items account for the majority of Walmart’s sales in the U.S., which helped the company power through the last recession (sales and earnings grew each year).

Walmart has increased its dividend for more than 40 consecutive years, but the business has seen its dividend growth rate slow to a low single-digit pace in recent years.

The company has dealt with earnings growth challenges in recent years resulting from increased e-commerce competition and rising labor and healthcare costs, which are likely reasons why Warren Buffett has decided to exit his position in Walmart.

Read More: Walmart Dividend Stock Analysis

6: Waste Management (WM)
Percent of Bill Gates’ Portfolio: 9.9%
Dividend Yield: 1.9%   Forward P/E Ratio: 25.1x   (as of 3/2/20)
Sector: Business Services   Industry: Waste Removal Services

Waste Management is the largest integrated waste management company in North America and services over 21 million residential, commercial, industrial, and municipal customers.

The company generates revenue by entering into contracts with customers to collect, transport, process, store, and dispose of their waste.

To carry out its operations, Waste Management owns a wide variety of assets, including landfills, truck fleets, transfer stations, recycling facilities, processing plants, and more.

Waste Management gains several advantages from being the largest player in the industry, including ownership of hard-to-replicate assets.

Waste Management owns 252 landfills, more than its next two largest competitors combined. There are only so many places that garbage collection companies can park trash. Many of Waste Management’s competitors must use the company’s landfills and pay the company a “tipping fee” to deposit their trash.

Waste Management’s key assets, dense waste collection network, and tipping fees allow it to maintain a lower cost profile than its peers. This results in more waste volumes from customers (greater route density) and higher returns on its capital.

Smaller rivals and new entrants lack the scale needed to construct their own trash disposal facilities and are challenged to win business from Waste Management, which maintains multi-year contracts with customers.

Trash collection is also a fairly recession-proof service that results in steady earnings. While growth prospects aren’t overly exciting, Bill Gates likes highly predictable businesses.

Turning to the dividend, Waste Management has increased its dividend for 15 consecutive years. The company’s dividend has low to mid-single-digit growth potential and is extremely safe thanks to Waste Management’s healthy payout ratio and consistent free cash flow generation.

Read More: Our Analysis of Waste Management 

7: Canadian National Railway (CNI)
Percent of Bill Gates’ Portfolio: 7.3%
Dividend Yield: 2.1%   Forward P/E Ratio: 18.6x   (as of 3/2/20)
Sector: Transportation   Industry: Rail Transportation

Canadian National Railway’s roots can be traced back to the early 1900’s. The company was formed through the combination of several financially-challenged railways and was later privatized in 1995.

The company owns and operates roughly 20,000 miles of railroads running across Canada and mid-America. Its network connects the Atlantic, the Pacific, and the Gulf of Mexico.

Each year, Canadian National Railway handles over $250 billion worth of goods and transports more than 300 million tons of cargo for importers, exporters, farmers, retailers, and manufacturers.

By commodity group, 23% of the company’s freight revenue is intermodal, 19% grain & fertilizer, 18% oil & chemicals, 14% forest products, 11% metals & minerals, 7% automotive, and 4% coal.

Roughly one third of the company’s revenue is generated from transborder traffic, 32% overseas traffic, 15% U.S. domestic traffic, and 18% Canadian domestic traffic.

Why does Bill Gates have a large stake in the company? Railroads have proven to be extremely durable businesses for several reasons.

First, they own hard-to-replicate assets. There are only so many railway lines that are needed in the country, and incumbent operators already control the most valuable routes. For example, Canadian National Railway can reach close to 75% of the population in North America with its railway network.

Railroad operators routinely invest close to 20% of their revenue back into capital equipment to keep their lines safe and efficient. Smaller companies cannot afford these massive capital outlays.

The industry has also consolidated to further improve productivity and make it more challenging for new entrants to gain a foothold. The three largest U.S. railroad operators account for more than 60% of total rail miles in the country, for example.

As a result of the industry’s consolidation, hard-to-replicate assets, and essential supply chain services, railways have consistently increased prices by 2-4% per year.

Canadian National Railway is one of the most productive railway operator in the country and will remain relevant for a very long time.

Warren Buffett also loves railroad operators and acquired Burlingon Northern Santa Fe (BNSF) in 2010 for $34 billion, adding the company to Berkshire Hathaway’s portfolio of dividend stocks.

Turning to the dividend, Canadian National Railway has raised its dividend every year since it went public in 1995. Over that time period, the company’s dividend has compounded by about 15% per year.

Despite the slump in commodities in recent years, Canadian National Railway raised its dividend by 20%, 8%, 10%, and 18% in 2016, 2017, 2018, and 2019, respectively.

Management also increased the company’s target payout ratio to 35%, which will allow the dividend to grow faster than underlying earnings for a few years to approach its new payout target. Double-digit dividend growth could continue.

Read More:
Our Analysis of Canadian National Railway

8: FedEx (FDX)
Percent of Bill Gates’ Portfolio: 2.8%
Dividend Yield: 1.9%   Forward P/E Ratio: 12.4x   (as of 3/2/20)
Sector: Transportation   Industry: Air Freight Transport

FedEx began operations in 1973 and has grown to provide transportation delivery services to more than 220 countries and territories.

FedEx Express (express distribution services) accounted for 55% of the company’s revenue last year, followed by FedEx Ground (28% – North American small-package delivery services), FedEx Freight (10% – North American provider of less-than-truckload services), and FedEx Services (7%).

Providing each of these services provides FedEx with an advantage. In fact, over 90% of U.S. revenue comes from customers of two or more operating companies.

As a logistics business, FedEx derives its moat from being a world-class operator with very efficient business processes.

Delivering packages is largely a density game. The operator with the most routes and touch points is able to more efficiently deliver products to save customers time and money.

With one of the largest distribution networks in the industry (e.g. a fleet of more than 47,000 vehicles), FedEx enjoys solid profitability and has proven to be extremely durable.

New competitors would need to spend billions of dollars and take years of time to replicate the company’s distribution network.

FedEx has paid uninterrupted dividends since 2002, but its payout has remained frozen since mid-2018.

9: Arcos Dorados (ARCO)
Percent of Bill Gates’ Portfolio: 0.1%
Dividend Yield: 0.9%   Forward P/E Ratio: 15.5x   (as of 3/2/20)
Sector: Consumer Discretionary   Industry: Restaurants

Arcos Dorados is the largest McDonald’s franchisee in the world as measured by total sales and number of restaurants.

The company has the exclusive right to own and operate McDonald’s franchises in 20 Latin American and Caribbean countries, including Brazil and Mexico.

Arcos Dorados went public in April 2011 and operates or franchises more than 2,100 McDonald’s branded restaurants today. Brazil is its largest market and accounts for close to half of the company’s total revenue.

Michael Larson was likely attracted to Arcos Dorados because of its strong global brand (McDonald’s) and leading market position in key emerging markets. As consumption rises in these regions, Arcos Dorados appears well positioned to benefit over time.

Arcos Dorados stopped paying dividends in 2015 because of the adverse impact currency exchange rates and weak emerging markets were having on the business. Management needed to prioritize maximizing free cash flow and cleaning up the balance sheet first. The company resumed its dividend payments in 2018.

10: Ecolab (ECL)
Percent of Bill Gates’ Portfolio: 4.0%
Dividend Yield: 1.0%   Forward P/E Ratio: 29.3x   (as of 3/2/20)
Sector: Basic Materials   Industry: Specialty Chemicals

Ecolab sells a wide range of sanitizers, cleaners, lubricants, cleaning systems, dispensers, water treatment products, and on-site services. Over 90% of Ecolab’s business is a recurring revenue stream (e.g. customers consumer Ecolab’s sanitizers and need to reorder).

The company’s products and services are used by customers in practically every industry (restaurants, hotels, hospitals, Laundromats, manufacturing plants, oil wells, etc.) to keep their food safe, maintain clean environments, and optimize water and energy use.

Ecolab is in more than 1 million customer locations in 172 countries around the world. Nearly 60% of Ecolab’s revenue is generated in North America. Another 18% is from Europe, 13% from Asia Pacific, and 6% from Latin America.

Ecolab is a fantastic business with an excellent moat. The company maintains more than 7,700 patents covering its unique technologies, which help it sell its solutions at 10-20% price premiums compared to competitors’ offerings.

While Ecolab’s initial cost to customers is higher, its products deliver meaningful savings over time (e.g. less waste, greater energy efficiency) that make them cheaper overall.

However, the company’s biggest advantages are its dependable service quality and people. At the end of the day, Ecolab is selling service and consistency (e.g. food needs to be kept safe, water needs to be kept clean, etc.).

Ecolab has nearly 50,000 employees, and more than half of them are in customer-facing roles. These employees visit customer locations each year and help reinforce the value of Ecolab’s products and systems being used by the customer.

On-site visits also allow Ecolab to cross-sell new products to existing customers and expand the amount of business it does with each one.

Ecolab estimates that its addressable market is $100 billion in size and highly fragmented – Ecolab is the biggest player with less than 15% market share.

Rivals and new entrants are unlikely to break Ecolab’s massive service network, breadth of products and services, and long-standing customer relationships.

Bill Gates likes stable, durable businesses with plenty of opportunity for continued growth, and Ecolab checks all of these boxes.

The company’s dividend track record is also excellent. Ecolab has paid cash dividends on its common stock for 80 consecutive years and increased its dividends paid every calendar year since 1986, making it a member of the S&P Dividend Aristocrats Index.

Ecolab’s dividend has compounded at a 13% annual rate over the last 10 years, and management last increased the dividend by 2% in January 2020.

Read More:
Our Analysis of Ecolab

11: Grupo Televisa (TV)
Percent of Bill Gates’ Portfolio: 0.8%
Dividend Yield: 0.9%   Forward P/E Ratio: 23.6x   (as of 3/2/20)
Sector: Consumer Discretionary   Industry: Radio & TV Broadcasting

Grupo Televisa is a major media company in the Spanish-speaking world, a large cable operator in Mexico, and one of the biggest satellite pay TV systems in Mexico.

The company distributes its content through four broadcast channels in Mexico, over 25 pay-TV brands in Mexico and abroad, and TV networks, cable operators, and over-the-top services in more than 50 countries.

Approximately 38% of Televisa’s operating income is generated from the content it products for free-to-air and pay-TV, mostly in the form of advertising dollars. Cable generates over 30% of operating income and provides video, high-speed data, and voice services to residential and commercial customers.

Sky is a leading direct-to-home satellite TV system that operates in Mexico, Central America, and the Dominican Republic. It has approximately 8 million subscribers and accounted for 25% of Televisa’s operating income last fiscal year.

Why does Bill Gates own Televisa? Most notably, the company’s potential for long-term growth is excellent.

Televisa is a leading producer of Spanish-language content in Mexico and one of the largest in the world. It also owns one of the largest cable operators in Mexico and a leading satellite pay-TV system in the region.

As Latin America enjoys strong population growth in the coming years, demand for Televisa’s media services should expand over time. The company’s content can be consumed by even more customers, and rising consumer wealth in the region should drive higher adoption of pay-TV services.

None of this will happen overnight or in a straight line, but Michael Larson is known for his patience.

Investors should also note that Televisa’s dividend history is somewhat volatile since the company is mostly focused on reinvesting for earnings growth at this time.

The stock is most appropriate for investors with a very long holding period and little need for current income today.

Closing Thoughts on Bill Gates’ Portfolio

Bill Gates’ portfolio of dividend stocks is concentrated in companies built for the long term.

Each business has a long operating history and has some combination of hard-to-replicate assets, strong brand recognition, and numerous opportunities for long-term earnings growth. Most of them also have long track records of rewarding shareholders with higher dividends.

If nothing else, Bill Gates’ portfolio underscores the importance of focusing on the long term and refusing to compromise on business quality.

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