4: United Parcel Service, Inc. (NYSE:UPS)
Percent of Bill Gates’ Portfolio: 2.7%
Dividend Yield: 2.7% Forward P/E Ratio: 18.4x (as of 11/18/16)
Sector: Transportation Industry: Air Freight Transport
United Parcel Service, Inc. (NYSE:UPS) was founded in 1907 and has grown to become the world’s largest package delivery company. In 2015, UPS delivered approximately 4.7 billion packages and documents in more than 220 countries and territories.
Domestic package delivery services account for just over 60% of total revenue. International package delivery services generated another 21% of revenues, and supply chain and freight businesses make up the remaining 16% of sales.
UPS’s vast supply chain and logistics network creates a durable competitive advantage. The company has more than 100,000 package cars, vans, tractors, and motorcycles to accompany its 237 UPS jet aircraft.
The company also has nearly 5,000 UPS Stores, over 38,000 UPS Drop Boxes, and more than 24,000 UPS Access Point locations. Thousands of touch points and various delivery modes allow UPS to more efficiently deliver packages than smaller rivals.
Replicating the company’s assets would be extremely expensive and take years of time. Furthermore, new competitors would lack the shipping volumes needed to cover the costs of such a large delivery network.
It’s hard to imagine a new company beating the convenience and low-cost shipping benefits offered by UPS. UPS should also benefit from e-commerce growth as more packages need to be shipped around the world.
United Parcel Service, Inc. (NYSE:UPS) has paid dividends for 46 consecutive years and raised its dividend every year since 2010. Management has historically increased the dividend by 8-9% per year over the last decade, and UPS’s healthy payout ratio near 55% provides room for continued dividend growth.
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5: Waste Management, Inc. (NYSE:WM)
Percent of Bill Gates’ Portfolio: 6.4%
Dividend Yield: 2.4% Forward P/E Ratio: 21.8x (as of 11/18/16)
Sector: Business Services Industry: Waste Removal Services
Waste Management, Inc. (NYSE:WM) is the largest integrated waste management company in North America and services over 21 million residential, commercial, industrial, and municipal customers.
The company generates revenue by entering into contracts with customers to collect, transport, process, store, and dispose of their waste.
To carry out its operations, Waste Management owns a wide variety of assets, including landfills, truck fleets, transfer stations, recycling facilities, processing plants, and more.
Waste Management gains several advantages from being the largest player in the industry, including ownership of hard-to-replicate assets.
Waste Management owns 252 landfills, more than its next two largest competitors combined. There are only so many places that garbage collection companies can park trash. Many of Waste Management’s competitors must use the company’s landfills and pay the company a “tipping fee” to deposit their trash.
Waste Management’s key assets, dense waste collection network, and tipping fees allow it to maintain a lower cost profile than its peers. This results in more waste volumes from customers (greater route density) and higher returns on its capital.
Smaller rivals and new entrants lack the scale needed to construct their own trash disposal facilities and are challenged to win business from Waste Management, which maintains multi-year contracts with customers.
Trash collection is also a fairly recession-proof service that results in steady earnings. While growth prospects aren’t overly exciting, Bill Gates likes highly predictable businesses.
Turning to the dividend, Waste Management, Inc. (NYSE:WM) has increased its dividend for 13 consecutive years. The company’s dividend has low- to mid-single digit growth potential and is extremely safe thanks to Waste Management’s healthy payout ratio, consistent free cash flow generation, and strong financial ratios.
Read More: Waste Management Dividend Stock Analysis
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