5 Top Bill Gates Holdings

With its $38.9 billion endowment, the Bill and Melinda Gates Foundation is both one of the largest charities and one of the largest investment funds in the world.

Though the organization is entirely philanthropic, its efforts are costly and require a steady supply of cash. The foundation accommodates this need by carefully managing a fairly concentrated portfolio of growth and income stocks.

Microsoft

Few will be surprised to discover that the foundation’s top holding is a $12.4 billion stake in Microsoft donated by Bill Gates himself. At just under 32 percent of the total portfolio, Microsoft stock is the driving engine behind the charity’s finances.

Surprisingly, though, the stock is one of the lowest performers in the broader portfolio. The cost basis on the foundation’s MSFT shares is $246. To date, the shares held in the endowment fund have appreciated by just over 55 percent.

MSFT is, however, likely the best growth stock in the portfolio. With a focus on high-margin cloud computing and more recent breakthroughs in AI technology, Microsoft is in an excellent position to drive growth through innovation for many years to come. Over the coming 5-year period, analysts expect the company’s earnings to rise by about 14.6 percent each year.

Going forward, it’s also probable that the Microsoft stake will become a decent source of cash flow. Today, Microsoft’s dividend yield stands at just 0.8 percent.

Considering that management has raised the distribution at an average annualized rate of 10.1 percent over the last three years and the payout ratio is still under 30 percent, though, there is considerable room left for dividend growth for shareholders.

Berkshire Hathaway

Bill Gates isn’t the only billionaire to have donated to his charity’s endowment. Gates’ close personal friend and investing icon Warren Buffett has given the foundation over $39 billion in Berkshire Hathaway (NYSE:BRK.B) shares.

Although many of these shares have been sold to fund the organization’s charitable activities, the endowment fund still maintains a $7.9 billion position in Buffett’s massive conglomerate.

Berkshire is a natural fit for the long-term financial goals of a charity that will almost certainly outlive its founders and early financial backers.

The company has handily outperformed the S&P 500 during several periods in its history by gradually buying up undervalued businesses and stocks. Berkshire performs especially well during recessions and bear markets, which could make the stock a safe haven for returns as the Gates Foundation fund continues to grow.

There’s also a good argument to be made that BRK.B shares are still undervalued and could continue to appreciate going forward.

Despite rocky revenues as of Q3 reporting, Berkshire maintains an enormous portfolio of businesses with excellent moats and decent long-term growth prospects. Over time, the market will likely rebalance and drive Berkshire shares higher.

In the interim, Buffett and his management team are taking advantage of the company’s undervaluation to repurchase tens of billions of dollars worth of Berkshire Hathaway shares.

Canadian National Railway

Although the foundation’s top two stocks are more growth-oriented, the three stocks that round out its top five holdings are somewhat more income-focused. The largest of these is Canadian National Railway (NYSE:CNI).

This massive railroad company pays investors a dividend of $2.32 annually or 1.9 percent of the stock’s current market value.

Beyond being a solid source of operating income, Canadian National gives the foundation a remarkably stable investment for the long run. The company is the largest rail transport business in Canada and provides shipping services to both the Atlantic and Pacific coasts. CNI is even expanding its business in the United States. In December, CNI added the Iowa Northern Railway to its already extensive network of rail holdings.

Despite much appeal in terms of income and growth, CNI is the stock that has produced the smallest return for the Gates Foundation. Shares of CNI held by the charity’s fund have appreciated by just 26 percent from their original cost basis of $99.

Given the long investment time horizon the foundation operates on, though, it’s likely that a combination of growth, value and income potential will make CNI a good long-term holding.

Waste Management

Another very strong income-generating stock is Waste Management (NYSE:WM). Shares of this sanitation and recycling company yield 1.6 percent or $2.80 per share.

With a little over 35 million shares, the endowment therefore brings in nearly $100 million in annual dividends from WM alone.

Waste Management also offers the foundation a great deal of investment stability, as the company’s revenues come largely from long-term municipal contracts. These contracts are extremely stable sources of cash flow.

Paired with recent focus on cost-cutting, this reliable revenue stream has enabled the company to become quite profitable. In Q3 alone, WM’s cash flow from operations increased by 6.9 percent compared to the previous year.

Waste Management has even added to its potential value in recent weeks by announcing a new authorization for $1.5 billion in share buybacks. This program builds on the $1.3 billion buyback that was executed throughout 2023. The announcement coincided with a 7.1 percent increase in the dividend to $0.75 per quarter.

From this increase and the buyback, the Gates Foundation is positioned to see its shares appreciate while generating even more income.

Caterpillar

Despite being the smallest of the top five holdings, Caterpillar (NYSE:CAT) is actually the best-performing stock in the entire Gates Foundation portfolio.

With an average cost basis of about $85, CAT shares have risen by over 240 percent since the endowment originally acquired them.

The construction and mining equipment manufacturer also stands to benefit from investments in electrification as its customers switch to greener technologies for their projects.

Like the last two stocks, CAT is also a rich source of dividend income that the foundation can use to fund its ongoing charitable projects. At 1.8 percent, Caterpillar’s yield is only slightly lower than CNI’s.

Where the railroad’s payout ratio is 42.4 percent, however, CAT’s stands at a much slimmer 29.5 percent. As a result of this and its expected 3-5 year earnings growth rate of 10.4 percent, Caterpillar may be able to raise its dividend faster than CNI and ultimately prove to be the better income investment.

---

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.