Sometimes, investing is simple. You don’t need to come up with your own stock ideas. And you can follow what other top investors are doing.
Between you and me, it’s a quick way to unearth stocks for your portfolio. Of course, make sure you get all your basics sorted out.
I mean, why work so hard when you have the best investors done the work for you?
Just like you and me, Microsoft co-founder Bill Gates also wants to make some money on his cash. And he’s put billions of his dollars into one of the world’s largest philanthropic organizations — The Bill & Melinda Gates Foundation Trust. Even his fellow multi-billionaire friend, Warren Buffett has donated into the Trust.
If there’s a common thread which runs through Bill Gates’ $46.8 billion Foundation Trust and a retirement portfolio is this — Both want a safe, steady stream of income. And the reason is, when Bill Gates runs a charitable organization, he’s more concerned with capital preservation than huge appreciation.
So, if having a safe, recurring dividend income is important to your wealth accumulation, you might want to have a look at how Bill Gates invests his money.
Today, we quickly dig into some of Bill Gates’ top dividend stocks for your learning.
Ticker: (NYSE: WM)
Share Price: $116
Market Cap: $49 billion
Dividend Yield: 1.91%
Waste Management is the largest solid waste service company in the world. Its sales aren’t affected by economic cycles for one simple reason — You need someone to clear the garbage.
Because of this, it’s been paying out dividends consistently since 1998, even during the pandemic. Its dividends paid almost doubled from $1.26 per share in 2010 to $2.05 per share in 2019.
Waste Management simply takes a fee from companies and households for taking out the trash. It also sells some of its recycled trash too. Some of the industries it serves include retail, manufacturing, real estate and construction. Trash collection from the public sector alone contributed 23% of sales last year.
Here’s the kicker. Waste Management has a massive network of 250 landfills, even its competitors use them for a fee. And here’s the thing. Running a landfill requires a permit, which is costly and hard to get. This is why Waste Management has a competitive advantage.
This keeps Waste Management’s bucket of free cash flow (FCF) coming in. Its FCF rose from $1.3 billion in 2015 to $2 billion in 2019. And its return on invested capital (ROIC) has been improving from 6.9% in 2015 to 11% in 2019.
The Gates Trust owns 19 million shares of Waste Management.
Ticker: (NYSE: WMT)
Share Price: $143.70
Market Cap: $406 billion
Dividend Yield: 1.50%
Walmart is the largest brick-and-mortar retailer. Last year, over 270 million people visited Walmart’s store weekly, buying basic goods. And according to CNBC, 95% of US consumers shopped at one of Walmart’s 4,756 stores. That’s higher than McDonald’s and Target at 89% and 84% respectively. If you think about it, it’s almost like a “recession-proof stock”.
You see, Walmart competes on being the lowest-price retailer. And this makes it hard for competitors to undercut prices because of Walmart’s sheer size and scale.
One key risk here is Walmart is prone to e-commerce competition. Already, Amazon.com is trying hard to bring it down with its competitive prices online. But so far, Walmart has been fairly resilient. And you can see this from Walmart’s steady sales growth from $421 billion in 2011 to $523 billion in 2020.
If the Covid-19 pandemic gets worse, people will continue to rush out to Walmart’s easy to reach stores to stock up on essential items, which is good for Walmart. And perhaps, that’s why its stock has been fairly steady despite the recent market sell-off.
Walmart generates a healthy dose of free cash flow and has been raising dividends over the past 10 years. One strong signal of a solid, dividend grower. Even during the pandemic, it maintained a quarterly $0.54 dividends per share, slightly higher than its $0.53 dividends per share last year.
The Gates Trust owns 12 million shares of Walmart.
Canadian National Railway (CNR)
Ticker: NYSE: CNI
Share Price: $104
Market Cap: $74 billion
Dividend Yield: 1.66%
CNR operated as early as the 1900s. It was the merger of many struggling railways.
Today, it’s one of the most productive railway operators and will be an important asset to the North American economy.
You see, railways are still a low-cost option for customers, despite rivals from sea freight, aircraft and trucks. For the record, railroads are cheaper than truck transport because of railroads’ fuel efficiency and its good use of labour. And because of industry consolidation, it makes it hard for anyone else to replicate a railway’s operator’s assets.
Think about it. A railway’s competitive advantage is its location. And CNR has a unique three-cast network — Spanning Canada coast to coast and down through to the US to New Orleans. It stops at major transport locations. And reaches out to 75% of the population in North America.
Its location advantage allows it to generate strong cash — between CAD1.2 billion to CAD2 billion per year. With free cash flow hitting almost 17% of its sales. And over the past 10 years alone, it generated at least double-digit returns on its invested capital (ROIC).
And it has rewarded shareholders well. Since its IPO in 1995, dividends have compounded by 15% per year. Over the past 10 years, dividends grew 4X from $0.54 per share to CAD2.15 per share. Management’s target payout ratio is still modest at 35%, which allows the company to reinvest its excess cash into the business.
Of course, having a geographical advantage can also work against CNR. If the North American economy goes into a recession, it could affect the railway operator’s business. But so far, CNR has remained fairly strong.
The Gates Trust owns 17 million shares of Canadian National Railway.
Ticker: NYSE: ECL
Share Price: $204
Market Cap: $58 billion
Dividend Yield: 0.93%
Merritt M.J. Osborn founded Economics Laboratory Lab in 1923 — “saving time, lightening labour and reducing costs to those we serve.” That’s the business idea behind Ecolab.
Ecolab originally started out selling a product to quickly clean carpets in hotel rooms, then selling dishwasher soap. Today, Ecolab is the largest player in the $130 billion cleanings and sanitation industry. And Ecolab controls around 10% of this industry. Their business makes money when companies want to make sure their hygiene standards are a priority for their customers and regulators. This can be in the hospitality, healthcare and food industries.
Ecolab makes sure supermarkets, grocers, restaurants, laboratories, food processing facilities have their hygiene in good order. Otherwise, these businesses will have to be shut down or fined by authorities.
The Covid-19 pandemic has devastated their sales and earnings, as hospitality and food industries were being shut down. It’s no surprise that they incurred losses recently because of the pandemic. But this makes Ecolab even more important once businesses resume.
And that’s why, despite the poor earnings performance, the share price remained resilient.
Its growth has been massive. Sales more than doubled since 2010 from $6 billion to $15 billion in 2019. While its earnings have tripled from $530 million to $1.6 billion over the same period. The company has rewarded its shareholders well — with dividend pay-outs from $0.64 per share to $1.85 per share during 2010 and 2019.
Its recent years has shown its ROIC has achieved double-digit percentage, as a result of its durable competitive advantage in the cleaning and sanitization industry.
They are also part of the Dividend Aristocrats, which have consecutively raised dividends year after year for at least 25 years.
The Gates Trust holds more than 4 million shares of Ecolab.
United Parcel Service
Ticker: NYSE: UPS
Share Price: $173
Market Cap: $149 billion
Dividend Yield: 2.34%
You can say UPS is the dominator of small-parcel deliveries, moving around 20 million parcels daily. This is compared to its next biggest competitor FedEx which moves 12 million parcels daily.
UPS has created a global delivery system which makes it hard to replicate. It’s got everything set up — the trucks, the planes, the sorting facilities, its skilled labour. This puts other competitors at bay for a very long time. Even Amazon.com, which analysts say is a huge risk for UPS, still very much needs UPS. You see, the online retail giant makes up 12% of UPS sales. So, if Amazon wants to bring its “last-mile” delivery in-house, it’s going to cost Amazon way more than it’s today.
And with Covid-19 speed in up the e-commerce wave, it’s a huge tailwind for UPS. And this can be seen from its massive sales and earnings growth over the last 10 years. Sales grew from $49 billion to $74 billion while its earnings grew from $3.4 billion to $4.4 billion over the past 10 years. Its ROIC has been nothing short of spectacular, averaging around 22% per year. All thanks to its large scale and efficient delivery service.
UPS has rewarded long time shareholders with its dividends, paying uninterrupted dividends since 1969. And over the last 10 years, has more than doubled from $1.88 per share in 2010 to $3.84 per share in 2019. All thanks to its cash generative business.
The Gates Trust holds around 3 million shares of United Parcel Service.
There you have it. 5 of Bill Gates’ best dividend stocks in his Foundation Trust you can get your stock ideas from. If you’d noticed, even though these stocks have very low yields of around 1%, 2% or 3%, the rate at which dividends have grown is massive. It’s how Bill Gates and even Warren Buffett build Berkshire Hathaway’s stock portfolio. While REIT
Sometimes, investing is simple.