Billionaire Bill Gates has 83% of his $48 billion portfolio in just 4 stocks

Most investors have probably heard of Bill Gates, best known as the billionaire philanthropist and co-founder of the Microsoft (MSFT 0.30%).

After leading the technology company he founded for more than 25 years, the former CEO stepped down to focus on his charity work. Gates is worth an estimated $132.6 billion (as of this writing), according to Forbes, making him the ninth richest person in the world. However, the legendary billionaire promised that “the vast majority of my fortune would go to help as many people as possible.”

The vehicle it uses to support this goal is the Bill & Melinda Gates Foundation Trust. “Our mission is to create a world where every person has the opportunity to live a healthy and productive life,” states the Gates Foundation website. The foundation has made $77.6 billion in grant payments since its inception, “taking on the toughest and most important issues.” As a result, the Trust’s holdings tend to vary from quarter to quarter.

While the Trust continues to hold stakes in more than two dozen companies, 83% of its portfolio was comprised of just four stocks at the end of the second quarter.

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1. Microsoft: 33%

Of all the holdings in the Gates Trust, Microsoft is by far the largest. This should come as no surprise, given that Gates established the foundation with his own holdings. The trust owns about 35 million shares of Microsoft, valued at $14.7 billion.

However, this is not the Microsoft of old. The company has expanded beyond browser and operating system software, with Azure Cloud becoming the fastest growing cloud infrastructure provider. It grew 29% year over year in the most recent quarter, beating both Amazon Web Services (AWS) and AlphabetHis Google Cloud.

However, it was Microsoft’s early move into generative AI that most excited investors. Management noted that Azure’s cloud growth included “eight points from AI services,” helping to illustrate the upside. The company’s AI-powered digital assistant — Copilot — and other AI tools could generate $143 billion in incremental revenue by 2027, according to analysts at Evercore ISI.

The trust also benefits from Microsoft’s quarterly dividend, which the company has paid consistently since 2004 and has increased every year since 2011. The current yield of 0.7% might seem insignificant, but it is a function of earnings impressive share price gains of over 200% over the past five years. Plus, with a payout ratio of less than 25%, there are likely to be many more dividend increases on the horizon.

2. Berkshire Hathaway: 21%

Fellow billionaire Warren Buffett, CEO of Berkshire Hathaway (BRK.A 0.94%) (BRK.B 0.97%)has similar plans to donate most of his wealth to charity. He joined Gates in the Giving Pledge in 2006 and has since donated approximately $43 billion to the Trust, including a $4 billion bequest in June. As a result, the Gates Foundation currently owns nearly 25 million Berkshire Hathaway Class B shares worth $11 billion.

Given Berkshire’s portfolio of profitable businesses and successful stock holdings, it’s no surprise that the Trust continues to keep so much of the stock on hand. The portfolio offers built-in diversification and is expected to reach billions in dividend income over the next year. In addition, Berkshire just reduced its stock holdings and boosted its cash pile to a record high. It now holds about $277 billion in cash.

Given the company’s history of success and massive cash accumulation, it’s no surprise that it’s still one of the Trust’s biggest holdings.

3. Waste management: 16%

Gates has a soft spot for boring companies with strong recurring revenue, which is the very definition Waste management (Wm -0.07%). If you have any doubts, consider this: The Gates Trust owns more than 35 million shares of Waste Management stock worth $7.3 billion.

Beyond garbage collection, Waste Management has a number of recovery stations that recover glass, paper, metal and plastics and redirect them for recycling. The company also operates a number of landfills where it collects gas to generate electricity and electric vehicles.

In the second quarter, revenue rose 5.5% year-over-year, while adjusted operating EBITDA rose 10%.

Let’s not forget the dividend. Waste Management has raised its payout for 15 consecutive years with a current yield of 1.43%. And with a payout rate of 46%, there’s a lot more where that came from.

4. Canadian National Railway: 13%

Another area where Gates and Buffett share common ground is their enduring confidence in railroads. Buffett was clear when he bought Burlington Northern Santa Fe in 2009, saying the railroads moved freight “in a very cost-effective way … they do it in a tremendously environmentally friendly way … (releasing) much less pollutants into the atmosphere.” Gates clearly shares this mindset, as the Trust owns nearly 55 million shares Canadian National Railway (CNI 2.49%) worth 6.2 billion dollars.

What sets Canadian National apart is that it is the only transcontinental railroad in North America, connecting the Atlantic coast, the Pacific coast, and the Gulf of Mexico. To Buffett’s point, railroads reduce greenhouse gas emissions by 75%. This is primarily because they are four times more efficient than trucks over long distances, making rail a more cost-effective option. Add to that their high barriers to entry and a significant economic moat, and it’s easy to understand the appeal.

Canadian National has a strong track record of dividend payments, with consecutive increases every year since it was initiated in 1996 and a current yield of 2.1%. The current payout ratio of 38% suggests there is plenty of opportunity for future growth.