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

After heading up 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 fabled billionaire has pledged that “the vast majority of my wealth would go toward helping as many people as possible.”

The vehicle he uses to support that 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, productive life,” the Gates Foundation website declares. The foundation has made grant payments of $77.6 billion since its inception, “taking on the toughest, most important problems.” As a result, holdings of the Trust tend to vary from quarter to quarter.

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

1. Microsoft: 33%
Of all the holdings in the Gates Trust, Microsoft is by far the largest. This shouldn’t be a surprise, given that Gates set up the foundation with his own holdings. The Trust owns roughly 35 million shares of Microsoft stock valued at $14.7 billion.

Yet this isn’t the Microsoft of old. The company has expanded beyond its browser and operating system software, with Azure Cloud becoming the fastest-growing cloud infrastructure provider. It’s up 29% year over year in the most recent quarter, outpacing both Amazon Web Services (AWS) and Alphabet’s Google Cloud.

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

The Trust also benefits from Microsoft’s quarterly dividend, which the company has paid out consistently since 2004 and increased every year since 2011. The current yield of 0.7% might seem inconsequential, but that’s a function of the impressive stock price gains of more than 200% over the past five years. Furthermore, with a payout ratio of less than 25%, there are likely many more dividend increases on the horizon.

2. Berkshire Hathaway: 21%
Fellow billionaire Warren Buffett, CEO of Berkshire Hathaway (BRK.A) (BRK.B), has similar plans to donate the bulk of his wealth to charity. He joined Gates in the “Giving Pledge” in 2006 and has since donated roughly $43 billion to the Trust, including a bequest of $4 billion in June. As a result, the Gates Foundation currently holds nearly 25 million Berkshire Hathaway Class B shares worth $11 billion.

Given Berkshire’s portfolio of profitable businesses and successful stock holdings, it isn’t surprising that the Trust continues to keep so much of the stock on hand. The portfolio provides built-in diversification and is expected to rake in billions in dividend income over the coming year. Furthermore, Berkshire just pared down its stock holdings and boosted its cash pile to a record high. It’s now holding roughly $277 billion in cash.

Given the company’s history of success and massive cash pile, it isn’t surprising that it’s still one of the Trust’s largest holdings.

3. Waste Management: 16%
Gates has a soft spot for boring companies with strong recurring revenue, which is the very definition of Waste Management (WM -0.07%). If you have any doubt, consider this: The Gates Trust has a stake of more than 35 million shares of Waste Management stock worth $7.3 billion.

Beyond just trash collection, Waste Management owns a number of reclamation stations that recover glass, paper, metal, and plastics and redirect them for recycling. The company also operates a number of landfills where it collects landfill gases to generate electricity and power vehicles.

In the second quarter, revenue grew 5.5% year over year, while its adjusted operating EBITDA increased 10%.

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

4. Canadian National Railway: 13%
Another area where Gates and Buffett share common ground is enduring faith in railroads. Buffett was clear when he bought out Burlington Northern Santa Fe in 2009, saying that railroads transported goods “in a very cost-effective way… they do it in an extraordinarily environmentally friendly way… [releasing] far fewer pollutants into the atmosphere.” Gates clearly shares this mindset, as the Trust holds nearly 55 million shares of Canadian National Railway (CNI) worth $6.2 billion.

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

Canadian National has a solid 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’s plenty of opportunity for future increases.

— Danny Vena

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Source: The Motley Fool