Friday, September 19, 2014

Bill Gates, Dividend Investor

WSJ Story on Michael Larson who manages investments for Bill Gates mentions the variety of different assets in the portfolio. This includes real estate, hotels, and a lot of stocks, too.

The stock portfolio is interesting to study, as you might imagine its pretty defensive. Berkshire Hathaway is 46% of the portfolio. Clearly follows rule 1 - don't lose money.

There are a number of idiosyncratic ideas in the portfolio like Liberty Global, Grupo Televisa, and Crown Castle.  These things all sound interesting but overall majority of these kind of things just goes into the "too hard" pile for me.

Luckily though, a clear theme emerges in something I can get traction on - over a third of the stock portfolio is high quality dividend growth stocks.

Here is my calculation of dividend income from the top dividend payers in the portfolio.

Shares Div Income Yield
Coca Cola (KO) 34,002,000 1.22 41,482,440.00 3.10%
Caterpillar (CAT) 11,260,857 2.8 31,530,399.60 2.8
McDonald's (MCD) 10,872,500 3.24 35,226,900.00 3.4
Wal-Mart (WMT) 11,603,000 1.92 22,277,760.00 2.6
Waste Mgmt (WM) 18,633,672 1.5 27,950,508.00 3.4
Exxon Mobil (XOM) 8,143,858 2.76 22,477,048.08 2.8
Republic Services (RSG) 1,350,000 1.12 1,512,000.00 3
Arcos Dorados (ARCO) 3,060,500 0.24 734,520.00 3.8
Coca Cola FEMSA (KOF) 6,214,719 1.11 6,898,338.09 1.1
BP (BP) 7,315,267 2.34 17,117,724.78 4.7

The portfolio construction has a couple of patterns. There are blue chip stalwart, dividend champion types - Coca Cola, McDonald's, Wal-Mart, and Exxon Mobil.  The kind of stocks where you buy right and sit tight.

Then there is trash - Waste Management and Republic Services. I really appreciate the static nature of these businesses. Waste Management owns I believe around half the of the landfills in the US, so even if they lose a hauling contract their competition has to pay them to use the landfill. Though I like the model, I could not get the math to add up on the safety of their dividend to get comfortable with WM. Republic Services looked more interesting some years back but the price has really run up.

There is a minor theme in the portfolio - US brands in Latin America. Coca Cola FEMSA is the largest Coke bottler outside the US and distributes products across Mexico and most of Latin America. Arcos Dorados (currently at/near 52 multi year low with a single digit forward P/E and near 4% yield) is the McDonald's franchisee for all of Latin America with over 2,000 McDonald's in 20 countries. These two standout as separate from the blue chip dividend approach and offer a potentially viable way to invest and earn income in Latin America.

Like Charlie Munger says its often profitable to learn from great investors.  With a track record like Michael Larson's where "Mr. Gates's net worth has swelled to about $82 billion from $5 billion since he hired the former bond-fund manager and gave him autonomy to buy and sell investments as he sees fit." its for sure that 16x growth with low risk is worth learning from. My takeaways from the stock portion of the portfolio are - 

1) Play defense first - 45% in Berkshire Hathaway helps anyone sleep well at night.

2) Generate quality income - boring is beautiful, the dividend championesque list above comprises over 33% of the portfolio and continues to deliver dividend growth

3) Be opportunistic - investments like Canadian National Railway and Liberty Global have paid off big time with each up over 200% since purchase

Reverse engineering those rules sounds just like the philosophy here- Safety, Dividends, Growth - in that order.

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