Investors looking for high-quality dividend growth stocks to buy for the long term can gain valuable insights by reviewing the holdings of successful investors. One example is found with a list of Bill Gates stocks.
This article will examine three of our favorite names among the Bill & Melinda Gates Foundation. The portfolio holds just 21 common stocks.
In this article, we will examine three of our dividend-paying favorites in the portfolio.
They are:
Bill Gates Stocks: Microsoft (MSFT)
First up on our list of Bill Gates stocks is the company Gates used to lead, Microsoft, which also happens to be one of the largest companies in the world.
The company develops, manufactures, and sells software and hardware to businesses and consumers. Microsoft’s products include operating systems, business software, software development tools, cloud services and video games and gaming hardware. The $2.5 trillion company has annual revenues of $168 billion. Microsoft is the seventh largest holding in the Gates Foundation’s portfolio.
To reach a market capitalization of Microsoft’s size takes multiple competitive advantages to achieve.
Microsoft’s transition to cloud computing service during the middle of the previous decade has positioned the company as the top name in an expanding industry. Some estimates put the global cloud computing market size at $445 billion for 2021, but the size of the market could more than double by 2026.
The Covid-19 pandemic probably accelerated the move to cloud as business, schools, government, and other institutions and industries moved online over the last two years. Microsoft’s Azure has had extensive growth as customers seek out the company’s offerings. For context, Microsoft’s cloud business generated nearly $21 billion in revenue in its most recent quarter.
The company’s personal computing segment also remains a core business, but has expanded beyond just operating systems to include gaming, search, advertising, news and tablets. Microsoft’s Office 365 business has seen impressive growth rates once the product lineup moved to a software-as-a-service system, including a 23% improvement in revenue last quarter. This recurring revenue stream provides Microsoft with an abundance of cash to deploy for acquisitions, share repurchase or dividends.
Microsoft has one of the best balance sheets in the entire market. The company is one of just two that has a AAA credit rating, the highest credit rating available. Microsoft’s business has been so successful at generating cash that the company had nearly $130 billion of cash and short-term investments on its balance sheet against $50 billion of long-term debt.
Microsoft has used its abundance of free cash flow to provide 20 consecutive years of dividend growth. The dividend yield is just 0.8%, but the expected payout ratio for the current fiscal year is very low at 28%.
With strong growth rates, including an earnings-per-share CAGR of close to 27% over the past five fiscal years, and a leadership position in nearly all of its businesses, it is likely that Microsoft will continue to see excellent results as well as raise its dividend going forward.
Walmart (WMT)
The next among our Bill Gates stocks is Walmart, which is the largest retail chain in the world. The company opened its first discount store in 1945, but today has operations around the world.
Walmart has a market capitalization of more than $400 billion and generates annual revenue of $545 billion. Walmart checks in as the fifth largest position in the portfolio.
Like Microsoft, Walmart benefits from a massive presence in its industry. The company has close to 3,570 supercenters, 800 Neighborhood Markets and 600 Sam’s Clubs in the U.S. alone. Walmart also has a strong international presence as the company has another 6,100 stores spread over 25 different countries around the world.
It is estimated that Walmart sees 230 million customers each week around the world. This provides the company an extremely large customer base, something that very few, if any, other retailers can claim.
The reach of the company is one of the primary reasons that Walmart can keep its prices on everyday items low as merchants want access to the customer base. Another factor in keeping prices low is that Walmart’s distribution network reduces the cost of transporting goods to stores.
Walmart’s low prices are always attractive to consumers, especially under recessionary conditions when budgets become tighter. This helps to shield the company from declines in revenue and earnings-per-share even in the event of an economic downturn. The company’s performance during the Great Recession speaks to this as earnings-per-share grew high single-digits each year during the 2007 to 2009 time period.
The company also prospered during the worst of the Covid-19 pandemic as revenue climbed higher every quarter during calendar year 2020. Higher demand during the height of the pandemic wasn’t a one-off event either. The two-year stack rates for revenue growth are in the high single-digit to low double-digit range for each of the last four quarters. Comparable sales were up nearly 16% on a two-year stack basis in the most recent quarter. Top-line gains have been abundant over the medium-term as year-over-year revenue has shown improvement every quarter for the past five years.
Walmart’s most recent focus has been on building its e-commerce business, something that likely will provide meaningful lift to the business. E-commerce really took off in 2020, as sales through this channel were up 79% as consumers used online shopping to meet their needs during the pandemic. Again, this was far from a one-time event as e-commerce sales were higher by 8% in the third-quarter of fiscal year 2022, showing that this channel remains an important avenue for revenue growth.
Walmart’s successful execution of its business model over the years has enabled the company to grow its dividend for 48 consecutive years, putting the company just two years shy of reaching Dividend King status. The stock offers a market beating dividend yield of 1.6% that looks very safe due to the projected payout ratio of 34% for the year.
With a large footprint worldwide and a growing e-commerce business, Walmart should remain one of the leading retailers in the market place.
Bill Gates Stocks: Waste Management (WM)
Last on our list of Bill Gates stocks is Waste Management, a leading provider of waste management services. The company provides a wide range of services, including collection, transfer, disposal and recycling.
Waste Management produced revenue of $15 billion last year and is valued at $68 billion today. The stock is the second largest position in Gates Foundation’s portfolio.
Waste Management is the largest provider of waste services in North America. The company owns and operates close to 270 landfills, 348 transformation stations and 103 material recovery facilities.
In total, the company’s customer list numbers more than 21 million. There are just a few major names in the industry, giving Waste Management an edge on the competition just due to its size. This also provides the company the ability to increase prices while not risking the loss of its customer base.
Waste Management has also taken steps to augment its business by acquiring smaller companies. For example, the company purchased Advanced Disposal in late October 2020. The transaction enlarged Waste Management’s footprint as Advanced Disposal provides waste management and recycling services to approximately 3 million commercial, industrial, and residential customers in 16 states in the eastern portion of the country.
Acquisitions, combined with volume growth, led to a more than 20% increase in revenue in the most recent quarter. Earnings-per-share also grew significantly, providing further evidence that Waste Management has recovered from the pandemic.
The company has seen an impact from wage inflation in its business, but Waste Management is helping to nullify these pressures with price increases across most of its contracts.
Waste collection has proven to be a good business to be in even in a recession. The company saw relatively stable earnings results during the last recession. Covid-19 was a slight negative impact on results last year. However, Waste Management is expected to see a new high for earnings-per-share for 2021, speaking to the quality and resilient nature of the company’s business.
Waste Management has a solid dividend growth streak of its own, having raised distributions for the last 18 years. The stock’s yield comes in at 1.4%. Waste Management has a projected payout ratio for 2021 of 47%. The company’s leadership position in its industry coupled with strategic acquisitions should provide ongoing tailwinds to Waste Management’s business, likely leading to future dividend growth.
Final Thoughts
Looking at the holdings of well-known investors can provide the average investor with a list of quality companies to choose from.
Microsoft, Walmart, and Waste Management are three of the largest positions in the Gates Foundation’ portfolio. Each name is blessed with multiple competitive advantages that sets the companies apart from their respective peer group.
All three stocks have dividend-growth streaks of at least 18 years, which means each has increased its dividend through at least one recession and one Covid-19 impact year.
The yields for all three stocks are on the low side, but each business appears primed for continued strength, which will likely lead to continued dividend growth.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.