Bill Gates is one of the most recognizable names in technology. The billionaire turned philanthropist is best known as the co-founder and longtime CEO of Microsoft(NASDAQ: MSFT)the company he led for more than 25 years, although he now devotes much of his time to charity work.
According to Forbes, Gates is currently worth $104.8 billion (at the time of writing), making him the 13th richest person in the world. It’s important to note that Gates has promised that “the vast majority of my wealth would be spent helping as many people as possible.”
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To this end, he founded the Bill & Melinda Gates Foundation Trust. “Our mission is to create a world where everyone has the opportunity to live healthy, productive lives,” the Gates Foundation website says. By the end of 2023, the foundation had spent $77.6 billion since its inception, with a focus on “addressing the toughest and most important problems.”
While the Trust continues to own interests in a total of 24 stocks, at the end of the third quarter, 80% of its holdings were represented by just four stocks.
Image source: Getty Images.
Given his close ties to the company, it should come as no surprise that Microsoft is by far Gates’ largest holding. The Trust owns approximately 39 million shares of Microsoft, worth approximately $12.4 billion (at time of writing).
There are a number of reasons why Microsoft occupies such a prominent place in the portfolio. In addition to the company’s lucrative browser, software and operating systems, Microsoft is the second-largest cloud infrastructure provider in the world, with 20% of the market. It is also a major player in the field of artificial intelligence (AI). The two are inexorably linked, giving Microsoft a pole position in these key growth industries.
Management revealed that Azure Cloud growth included “12 points from AI services,” which is now a strong contributor to growth. Microsoft’s AI offering could generate incremental revenue of $143 billion by 2027, according to analysts at Evercore ISI.
Microsoft has also paid a dividend since 2004, which has increased every year since 2011. While the 0.8% yield may seem paltry, it’s on top of the share price having risen 190% over the past five years (at the time of writing). Given the payout ratio of only 25%, many more dividend increases are likely to follow.
With all of this working in his favor, it’s not surprising that Microsoft represents such a large portion of the Trust’s assets.
Billionaire Warren Buffett, CEO of Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B)was one of the founders of the ‘Giving Pledge’, together with Gates. Buffett said that “99% of my wealth will go to philanthropy during my lifetime or at my death.” To date, he has donated approximately $43 billion to the Trust. That helps explain why the Gates Foundation owns more than 22 million shares of Berkshire Hathaway worth more than $10 billion.
Given Berkshire’s holdings, which include dozens of companies and stocks, it is considered an incredibly safe investment by many. That, combined with Buffett’s donations, shows why it’s a top holding. Berkshire also generates billions of dollars in dividend income each year and currently has $325 billion in cash.
Buffett is considered one of the most successful investors in the world, which is probably why Gates continues to hold so many Berkshire Hathaway shares.
Waste management(NYSE: WM) isn’t an exciting business, but the combination of reliable recurring revenue and strong pricing power explains why it’s a favorite of Gates. The Foundation owns more than 32 million shares of Waste Management stock worth $7.1 billion.
In addition to its roots in waste collection, Waste Management has spent a lot of money on automation projects to make its recycling operations more profitable. The company’s sustainable natural gas projects are also paying off.
Let’s not forget Waste Management’s dividend. The company has paid dividends every year since 1998 and has increased its payout 21 years in a row. It has a yield of 1.3% and with a payout ratio of just 45%, its track record of payout increases is likely to continue.
There’s a lot to like about railways, which offer a combination of cost-effectiveness and environmental benefits. Add to that the high barriers to entry and strong economic moat, and the appeal is clear. That partly explains why the Gates Trust owns almost 55 million shares Canadian National Railway(NYSE: CNI) worth approximately $6 billion.
Canadian National is unique among its peers in that it is the only transcontinental railroad in North America connecting the Pacific Coast, the Atlantic Coast and the Gulf of Mexico. As a means of transport, rail is four times more efficient than regular trucks. Trains are not only more cost-effective, but their greenhouse gas emissions are also 75% lower. There is also a strong economic moat and significant barriers to entry, making railways even more attractive.
Canadian National has a reliable track record of dividend payments, which has increased every year since the company’s initial public offering in 1995. It offers a current yield of 2.2%, and its 39% payout ratio provides plenty of opportunity for future increases.
Data per YCharts.
In addition to the above reasons for Gates to hold these shares in his Trust, there is another – perhaps more compelling – reason. Over the past five years, three out of four have generated triple-digit returns, surpassing U.S. profits S&P500with Canadian National Railway being the only laggard. This is partly explained by recent macroeconomic conditions and the inflation environment, which put pressure on results.
Overall, though, the returns from Gates’ biggest holdings provide the clearest argument yet for why these stocks are a sensible choice.
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Danny Vena holds positions at Canadian National Railway and Microsoft. The Motley Fool holds positions in and recommends 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 80% of his $45 billion portfolio in just four stocks, originally published by The Motley Fool
