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Caterpillar Inc. (CAT), Wal-Mart Stores, Inc. (WMT), Waste Management, Inc. (WM): Defensive Dividend Picks By Bill Gates’ Foundation Trust

Bill & Melinda Gates Foundation Trust is the largest philantropic organization in the world aimed towards helping poor countries solve a majority of issues related to health, poverty and other issues. With over $43 billion in assets under management, Bill & Melinda Gates Foundation Trust uses grantmaking and advocacy to contribute towards solving some major problems that affect billions of people such as AIDS and malaria epidemics, extreme poverty, or the poor state of American high schools. The foundation is run by three trustees: Bill and Melinda Gates and Warren Buffett, who donates each year substantial portions of his wealth to the foundation. In addition, the foundation runs an equity portfolio valued at almost $20 billion, which is managed by Michael Larson, who also administers Bill Gates’ personal wealth through an entity called Cascade Investment.

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Even though Bill & Melinda Gates Foundation Trust doesn’t exactly fit in the same category as hedge funds, or other investment firms, following its investments can provide some interesting insights. After all, let’s not forget that it is managed by the same man who has been growing Bill Gates’ fortune for two decades and this year Forbes named Mr. Gates the richest man in the world with a net worth of $79.3 billion. However, following Mr. Larson’s strategy might not be helpful for retail investors. First of all he has a conservative approach towards investing and prefers large-cap stocks that even though can provide steady returns over the years, won’t be able to help a smaller investor get rich. Mr. Larson is not the only one, as we have found that the majority of hedge funds also prefer to invest in large cap stocks. However, when we analyzed the returns of an equally-weighted portfolio consisting of 50 most popular stocks among hedge funds, we noticed that it underperformed the S&P 500 ETF (SPY) by 7.0 basis points per month. Nevertheless, following the activity of great money managers can still be helpful if we focus instead of small cap stocks. At Insider Monkey, we have developed a strategy that incorporates most popular small-cap stocks among over 700 hedge funds. This strategy provided returns of 132% between August 2012 and March 2015, outperforming the S&P 500 ETF by 79 percentage points during this period.

The last 13F filing of Bill & Melinda Gates Foundation Trust showed some major changes that have been made in the equity portfolio during the fourth quarter of 2014. The most important point is that Mr. Larson closed the positions in Exxon Mobil Corporation (NYSE:XOM), The Coca-Cola Co (NYSE:KO), and McDonald’s Corporation (NYSE:MCD), all three holdings previously being among the top 10 largest. In addition, the 13F filing revealed new positions in United Parcel Service, Inc. (NYSE:UPS), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Diamond Foods, Inc. (NASDAQ:DMND). Moreover, Mr. Larson also reduced the largest holding, represented by Berkshire Hathaway Inc. (NYSE:BRK.B), by 5.0 million shares to 78.63 million shares, but the $11.81 billion position amasses over 50% of the fund’s equity portfolio.

However, let’s focus on the dividend picks from the equity portfolio of Bill & Melinda Gates Foundation. Mr. Larson is known for his conservative approach towards investing and the majority of positions in his equity portfolio are represented by companies with decend dividend yields, north of 2%, which is why they can easily be used as defensive dividend stocks. We have selected three companies from the 13F portfolio that are among the largest holdings in terms of value and provide a solid dividend yield. The companies that we will look into are: Caterpillar Inc. (NYSE:CAT), Wal-Mart Stores, Inc. (NYSE:WMT), Waste Management, Inc. (NYSE:WM).

On the first spot is Caterpillar Inc. (NYSE:CAT), in which the foundation holds 11.26 million shares, valued at $1.03 billion. The holding is only the third-largest in the equity portfolio, but Caterpillar Inc. (NYSE:CAT) pays a quarterly dividend of $0.70, which gives it a yield of 3.53%. While, Mr. Larson has been holding shares of the company for a long-time and the Foundation remains to be one of the top shareholders of the company, other investors seem to have different opinions. Among over 700 funds that we track, the number of investors holding shares of Caterpillar Inc. (NYSE:CAT) went down to 35 from 37 a quarter earlier, but the aggregate value of the stakes held by these funds went up to $2.16 billion from $1.60 billion. However, in an interview earlier this year, short-seller Jim Chanos of Kynikos Associates said that he is short Caterpillar Inc. (NYSE:CAT) because the company has a lot of exposure to mining and energy, both of which are very challenged. Another investor that is long Caterpillar is Joel Greenblatt of Gotham Asset Management, which held 860,700 shares at the end of December, up by 147% on the quarter.

Next in line is Wal-Mart Stores, Inc. (NYSE:WMT), in which Bill & Melinda Gates Foundation Trust owns 11.60 million shares, valued at $996.47 million. Wal-Mart is one of the so-called dividend aristocrats stocks, which are S&P 500 constituents that have raised their dividends by at least 25 years. Wal-Mart Stores, Inc. (NYSE:WMT) pays $0.49 in dividends, which gives it a yield of 2.35%, which is the second-highest among discount stores, trailing only Target Corporation (NYSE:TGT), which has a yield of 2.58%. Among the funds that we track, the largest shareholder of Wal-Mart Stores, Inc. (NYSE:WMT) Stores is Warren Buffett, who holds 60.39 million shares as of the end of 2014, while the Foundation is on the second spot.

And the last, but not the least is Waste Management, Inc. (NYSE:WM), a $25 billion company that through its subsidiaries is engaged in environmental and waste management services in North America. Bill & Melinda Gates Foundation Trust owns 18.63 million shares, valued at $956.28 million. Mr. Larson has been a long-term shareholder of the company and the investment has paid off well, taking into account that the stock gained over 55% in the last three years alone. Moreover, Waste Management, Inc. (NYSE:WM) pays a dividend $0.38 per share, which gives it a yield of 2.84%. Jim Simons‘ Renaissance Technologies is another shareholder of Waste Management, Inc. (NYSE:WM), holding 1.52 million shares.

Disclosure: none