Bill Gates Top 3 Holdings

Microsoft founder Bill Gates manages a portfolio worth over $45 billion via The Bill and Melinda Gates Foundation.

Like his longtime friend and investment legend Warren Buffett, Gates has maintained a concentrated portfolio consisting of just 24 stocks to provide the funding for his philanthropic efforts.

Of those, just three stocks account for over 65% of the Gates Foundation’s total holdings. Bill Gates top holdings are Microsoft, which is 33.5% of his portfolio, Waste Management and finally Berkshire Hathaway.

What is it about these stocks that makes them so special to deserve such a high concentration of his portfolio?

Microsoft

As the company’s founder, it’s entirely unsurprising that Bill Gates’ largest holding is Microsoft (NASDAQ:MSFT). At 33.5% of the Bill and Melinda Gates Foundation’s portfolio, the Microsoft stake totals $15.4 billion and includes roughly 36.5 million shares.

One of the most valuable companies in the world, Microsoft offers a unique set of fundamentals that make it an excellent long-term stock for a fund like the Gates Foundation to hold. Thanks to its dominance in the software industry, Microsoft’s net margin in 2023 averaged 36.4%.

This allowed it to generate profits of $72.4 billion on revenues of $211.9 billion. Impressively, these numbers were accomplished with very little debt, as Microsoft’s debt-to-equity ratio is a very manageable 0.2x.

Looking forward, it’s very likely that Microsoft will keep generating strong returns for the foundation. Thanks to an early investment in OpenAI, the company was able to establish a strong lead in AI technology among the tech majors.

Due to its large existing software ecosystem, Microsoft has a unique platform for deploying AI products to a massive audience of customers. Though generative AI is still in an early phase, Microsoft is in an excellent position to become the market leader in this area and generate large profits from doing so.

This AI tailwind, coupled with the company’s already impressive performance as a software provider, has created the conditions for an extended period of continued earnings growth.

Over the coming five years, analysts predict that the company’s GAAP earnings per share will grow at a compounded annual rate of 13.7%.

In part, this increase will likely be driven by continued share buyback activity. Since 2010, the number of outstanding MSFT shares has dropped on a year-over-year basis in all but three quarters.

A final positive about Microsoft from the foundation’s point of view is the fact that the company is increasingly becoming an attractive dividend producer.

While tech majors like Alphabet and Meta have joined the dividend game much more recently, Microsoft has been paying shareholders quarterly distributions for over 20 years. At the time of this writing, MSFT shares yield about 0.6%.

With a payout ratio of only 26% and earnings projected to keep growing steadily, though, Microsoft has ample room left for further dividend increases in the future.

Cumulatively, these factors make Microsoft shares a natural bedrock for the foundation’s finances. Shares of the stock have already appreciated by an average of about 90% while in the Gates Foundation portfolio, and future earnings growth are likely to keep these returns coming for years to come.

At the same time, Microsoft’s increasing dividends have the capacity to provide a growing stream of liquid cash for the organization’s philanthropic activities.

Waste Management

Coming in at number two in the portfolio, Waste Management (NYSE:WM) is a 180-degree turn from a high-growth tech company like Microsoft. The foundation owns about $7.5 billion worth of WM shares, a little less than half the size of its Microsoft stake.

While not having anything like Microsoft’s capacity for growth, Waste Management is a highly reliable business that is largely recession-resistant due to its provision of essential sanitation services. As the largest player in the waste removal and recycling business, Waste Management balances the portfolio’s holdings with its low volatility.

That isn’t to say, however, that WM’s performance is lackluster. The company has generated about $20.7 billion in revenue over the past 12 months alongside a net income of $2.5 billion. This represents a historical high for the company’s net income, and in Q1 net income rose by more than 30% compared to the year-ago quarter.

It’s interesting to note that WM is actually the best-performing of the Gates Foundation’s top three stocks. The WM stake has a cost basis of $95.11 per share and has produced a gain of about 121%, beating out the return on the foundation’s Microsoft shares.

WM also handily outperforms MSFT when it comes to generating cash flows for the foundation via dividends. At 1.4%, Waste Management offers more than double Microsoft’s yield. At $3 per share, the foundation’s 35.2 million shares generate more than $100 million in dividend income each year from a position valued at $7.5 billion.

Berkshire Hathaway

The third pillar of the Gates Foundation’s investment fund is Berkshire Hathaway (NYSE:BRK.B). At $7.3 billion, this position is slightly smaller than the Waste Management investment.

The investment company founded and still managed by Warren Buffett, Berkshire has a long history of outperforming the S&P 500 and delivering outstanding returns to long-term shareholders.

Though the company’s investment activity has been somewhat muted recently, Berkshire has the option to make massive investments by virtue of the cash reserve it has built up over the years.

Expected to reach over $200 billion this year, the Berkshire cash stockpile allows the company to buy private businesses in their entirety or acquire large stakes in public companies whenever it chooses.

The company has largely avoided substantial long-term debt, leaving it with one of the most attractive balance sheets of any S&P 500 firm.

Even with fewer opportunities presenting themselves to Buffett and his team in today’s highly-priced market, Berkshire has managed to make a few attractive investments in recent months.

Among these are a new $6.7 billion stake in insurance company Chubb and an additional purchase of Occidental Petroleum shares that brought Berkshire’s ownership of the energy company to 28%.

While waiting for more investment opportunities to present themselves, the company continues to generate about 5% interest from its $153 billion worth of treasury bill holdings.

While Berkshire has resisted paying dividends, the company is continuously returning part of its massive cash reserve to shareholders via an ongoing share buyback program. In 2023, for instance, Berkshire repurchased $9.2 billion worth of its own shares.

Although Berkshire shares are a key holding for the Gates Foundation, it’s worth noting that the fund has been selling BRK.B shares to free up cash.

In Q1, for instance, the foundation sold over 2.6 million Berkshire shares. The Berkshire stake, however, is expected to be replenished by a further contribution of shares announced by Buffett at the end of June.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.