3 of Bill Gates' Safest Dividend Stocks to Buy for These Uncertain Times

Bill Gates is the richest man in the world. He currently has a net worth of around $75 billion. The Bill & Melinda Gates Foundation Trust shows how Gates has invested his money. Over half of the trust's funds are invested in Berkshire Hathaway. Much of the remainder is invested in high-quality blue-chip stocks. The portfolio is positioned toward great businesses that can withstand uncertain times.

Let's take a look at three of Gates' largest dividend holdings. These three stocks score high marks for consistency and stability. Additionally, all three currently pay dividends (for current income) and are very likely to continue paying increasing dividends far into the future regardless of what the overall economy does. One of the three currently scores very high using The 8 Rules of Dividend Investing.

1. Waste Management (WM)

Waste Management offers waste management and environmental services to residential, commercial, industrial and municipal customers in North America. These services include collection, transfer, recycling and resource recovery and disposal services.

As of Dec. 31, the Gates Foundation owned 18.6 million shares of Waste Management, worth approximately $1 billion.

The reason is likely because of Waste Management's strong business model. It is an industry leader, with something Warren Buffett refers to as a wide economic "moat," meaning its industry has high barriers to entry.

It is very difficult from a financial and regulatory perspective to enter the waste management industry. This virtually ensures Waste Management will not be suddenly unseated by a smaller competitor, and that relative safety provides the company with steady profits. Its adjusted earnings per share grew 13% in 2015, to $2.61. Double-digit earnings growth was due to lower fuel expenses, and the benefits of share repurchases, even though full-year revenue of $13 billion was down 7% year over year.

Going forward, the company expects 2016 to be another year of steady growth. Waste Management expects 2016 adjusted EPS to be $2.74 to $2.79. This forecast represents approximately 6% earnings growth at the midpoint of the range.

That growth should be realized by continued expansion of the company's recycling and solid waste businesses. Stock buybacks will boost earnings as well. Waste Management recently announced a new $1 billion stock buyback authorization.

The company also uses some of its annual profits to pay increasing dividends to shareholders each year. On Feb. 26, Waste Management raised its dividend by 6%, which makes 13 consecutive years of dividend increases for the company. That further boosted its reputation as a strong dividend stock.

Waste Management's new dividend will be $1.64 per share. The payout represents a 2.9% dividend yield. Waste Management stock provides a higher yield than the S&P 500 on average. The dividend appears secure. Waste Management's forward annualized dividend results in a 59% payout ratio, based on 2016 earnings guidance.


2. Walmart (WMT)

Walmart is one of the most impressive American business stories of the past century. Over the course of several decades, it grew into the largest retailer in the world. Walmart generates annual revenue of more than $480 billion.

In recent years, however, Walmart's growth has slowed down considerably.

The company is facing a number of challenges that have inhibited its growth. These include increasing scrutiny from consumers over the treatment of its employees and the cleanliness of its stores, as well as the strengthening dollar and escalating competition from Internet retailers such as Amazon.

This has proved to be a difficult challenge for the retail giant. Walmart earned $4.57 per share in diluted earnings in fiscal 2016, which was a 9% decline from the previous year.

But Walmart's underlying business remains strong. One of the major reasons why Walmart's earnings declined is because of unfavorable currency translations. The stronger dollar is expected to reduce Walmart's sales by $12 billion this fiscal year alone. Still, foreign exchange fluctuations are typically cyclical, and do not represent underlying demand for a company's products and services.

Separately, Walmart's earnings are also likely to remain under pressure, due to its higher internal investment in its strategic priorities. Namely, better nonmanagement employee compensation and digital sales.

But these investments are likely to pay off over the long term. Walmart needed to do more to bring customers back and also improve its image with consumers.

In the meantime, the company continues to generate strong profitability, which it uses to reward its shareholders with higher dividends. The company now expects earnings per share of $4.00-$4.30 for the current fiscal year.

Walmart is a Dividend Aristocrat, having raised its dividend for 43 years in a row. There are currently only 50 Dividend Aristocrats, stocks with 25-plus years of consecutive dividend increases.

Walmart's payout ratio is less than 50% of expected fiscal-year 2017 earnings, so it is still highly likely the company will continue to grow its dividend, despite its current challenges.

Walmart's $2 per share annual dividend yields 2.9%. Walmart is the Bill Gates holding that ranks highly using The 8 Rules of Dividend Investing.


3.  Canadian National Railway (CNI)

Canadian National Railway is a major Canadian railroad operator. Its network of approximately 20,000 route miles of track spans Canada and parts of the U.S. It has a nearly $50 billion market capitalization.

The company has exhibited impressive earnings growth in recent years, due primarily to higher freight revenue per carload, and the benefit of lower fuel prices.

Revenue and diluted earnings per share increased 3.9% and 14%, respectively, in 2015 vs. the previous year. This steady profitability allowed the company to increase its dividend payout by 25% last year.

2015 was a record year for the company for many reasons. Canadian National Railway generated record full-year revenue, operating profit, net income and earnings per share. In addition, it maintained record operating ratio of 58.2% and generated record annual free cash flow of $2.3 billion.

Canadian National Railway bucked the broader trend of weakness among the U.S. railroads, many of which have relied too heavily on coal shipments for revenue. Canadian National Railway's relative strength puts the company in an advantageous position.

Another source of competitive strength is that Canadian National Railway is a diversified business, both in terms of products and geographic focus. Last year, no individual commodity comprised more than 23% of its total revenue.

From a geographic perspective, 18% of revenue pertains to U.S. traffic, while 33% is transborder, 18% relates to Canadian domestic traffic and 31% is overseas traffic.

Moving forward, the company expects another very strong year in 2016. Management expects growth related to intermodal traffic, as well as commodities used for the U.S. housing construction and automotive industries.

The Gates Foundation owns slightly more than 17 million shares, worth approximately $1 billion.

Canadian National Railway is a strong dividend growth stock. It has already announced a 20% dividend increase for 2016.

The stock currently provides a 1.8% yield and a 34% payout ratio. Low dividend-yield stocks have two advantages that dividend investors tend to overlook. First, their low payout ratios make their dividends more secure than high-yield, high-payout ratio stocks. Second, paying out less in dividends means more money is left for growth. In the case of Canadian National Railway this is very good, as management has a proven track record of growing the business.

This article is commentary by an independent contributor. At the time of publication, the author was long WMT.

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