Billionaire Bill Gates has 82% of his $42 billion portfolio in just four stocks

By | February 29, 2024

Most investors are undoubtedly familiar with Bill Gates, billionaire philanthropist and co-founder of Microsoft (NASDAQ: MSFT). After a quarter of a century at the helm of the tech company, the CEO stepped down to devote more time to his charitable efforts. Since then, Gates has grown his wealth and is now worth an estimated $127.7 billion Forbesmaking him the seventh richest person in the world.

Gates’ charitable efforts are primarily focused on the Bill & Melinda Gates Foundation Trust. The trust’s mission is “to create a world where everyone has the opportunity to live a healthy, productive life.” The foundation has spent nearly $54 billion since 2000 to “address the toughest and most important problems.” As a result, the trust’s assets are constantly in flux. Although it has stakes in dozens of companies, four well-known stocks dominate the list.

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Image source: Getty Images.

1. Microsoft: 34%

It’s not surprising that Microsoft is taking the lead, given Gates’ unrelenting ties to the company. Moreover, he founded the foundation by donating some of his Microsoft shares. The Gates Foundation owns more than 38 million shares of Microsoft, worth $14.3 billion.

Yet this is not your grandfather’s Microsoft. Under the watchful eye of CEO Satya Nadella, the company has shifted its focus from on-premise software to the cloud – a strategy that has been hugely successful.

According to technology analyst firm Canalys, Microsoft Azure was the world’s second-largest cloud infrastructure provider in the fourth quarter of 2023, with 26% of the market. Perhaps more importantly, it was the fastest growing cloud provider of the ‘Big Three’, growing 30% year over year, beating both. Amazon Web services and Alphabet‘s Google Cloud, which grew 13% and 26% respectively. Additionally, cloud revenue now represents 54% of Microsoft’s total revenue and is the fastest growing of the company’s core efforts.

Perhaps the biggest opportunity for Microsoft is artificial intelligence (AI). The company moved quickly to capitalize on the rise of generative AI, and its position as a cloud leader gives Microsoft the opportunity to sell AI to its cloud customers. In fact, in its most recent quarter, Microsoft noted that Azure’s growth included “six growth points versus AI services.”

Finally, Microsoft has been paying its dividend consistently since 2004, with fourteen consecutive annual increases. The interest rate is a seemingly tepid 0.7%, but that is largely due to the strong price appreciation over the past two years. The stock has generated a 265% dividend gain over the past five years, despite the worst economic downturn in years. Furthermore, as Microsoft’s profits have risen, its payout ratio has fallen to 25% – near its lowest level in a decade. That gives Microsoft plenty of resources to increase its dividend in the near future.

2. Berkshire Hathaway: 17%

Warren Buffett has made no secret of his goal to eventually donate all his money Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) stock to charity. He joined Gates in 2006 and has since donated $36 billion to the Gates Foundation through 2022 – and encouraged other wealthy individuals to become benefactors. As a result, the Gates Foundation owns nearly 20 million Berkshire shares worth $7.1 billion.

Although the shares were donated, there are numerous reasons why the foundation still owns a large portion of the shares. Until the money is needed for good causes, Berkshire Hathaway’s vast collection of companies and stock holdings provides instant diversification while providing a steady stream of cash flow.

An example of the company’s ability to make money is its insurance operations, which include National Indemnity, GEICO, General Re, Berkshire Hathaway Reinsurance and Alleghany. These companies “performed exceptionally well last year, setting records for revenue, float and underwriting gains,” according to Berkshire’s recently released shareholder letter. In fact, these insurance businesses and related investment income accounted for 40% of Berkshire’s operating income of $37.35 billion.

Given the company’s long-term track record of success, significant cash flow generation and large amount of cash, it’s not surprising that it still represents a large portion of Gates’ holdings.

3. Canadian National Railway: 16%

Speaking of Warren Buffett, railroads are a subject close to his heart. When Berkshire Hathaway took ownership of Burlington Northern Santa Fe in 2009, Buffett noted that railroads were a very “cost-effective way” to transport goods while releasing “far fewer pollutants into the atmosphere.” After spending so much time with Buffett, the appreciation for trains must have disappeared. The Gates Foundation owns almost 55 million shares Canadian National Railway (NYSE: CNI) valued at $6.9 billion.

It’s easy to see the appeal. Railroads are seen as a linchpin of economic prosperity and are far more efficient at transporting goods than competing methods, including freight. Add to that a long corporate history, a wide economic moat and steep barriers to entry, and you have the recipe for the perfect Buffett stock — and, by extension, a perfect Gates stock, too.

Finally, Canadian National has consistently increased its dividend for 18 consecutive years and currently yields 1.9%. The relatively low payout ratio of 37% suggests there are probably plenty more where this came from.

4. Waste management: 15%

One man’s trash is another man’s treasure, as the saying goes. In some cases, however, there is treasure to be found in the garbage. That is the case with Waste management (NYSE: WM). That probably explains the Gates Foundation’s stake in more than 35 million shares of Waste Management, worth $6.3 billion.

Trash and recycling pickups may not be the most exciting activity, but the need is consistent and not going away anytime soon. Additionally, the company harvests gas from its landfills, which can be used to generate electricity or fuel vehicles.

Another attraction is the company’s dividend. Waste Management has been increasing its dividend for 15 years in a row and currently yields 1.4%. And with a payout ratio of 49%, there are plenty of opportunities for future increases.

A common thread

A common thread that investors will notice about the Gates Foundation Trust holdings is that many are dividend payers, which makes a lot of sense when you think about it. Money generated by dividend-paying stocks can be used to fund charitable donations without having to sell the underlying shares. In fact, in 2023, the portfolio generated nearly $500 million in dividend income.

For investors looking to add some income to their portfolio, three of these four stocks aren’t a bad place to start.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena holds positions at Alphabet, Amazon, Canadian National Railway and Microsoft. The Motley Fool holds positions in and recommends Alphabet, Amazon, Berkshire Hathaway and Microsoft. The Motley Fool recommends Canadian National Railway and Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Billionaire Bill Gates Has 82% of His $42 Billion Portfolio in Just 4 Stocks, originally published by The Motley Fool

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