These 3 dividend stocks used by Bill Gates to create passive income

At a time when more than one expert is predicting tough times for equity markets, the rest of 2022 could be an ideal time to look at dividend stocks. These represent a way to provide income in good times and bad, which is particularly important today.

Bill Gates

One notable portfolio that is heavy on dividend stocks is The Bill & Melinda Gates Foundation Trust. This is an American private foundation founded by Bill Gates and Melinda French Gates. Most of the money for the foundation comes from Gates' personal wealth. In addition to Buffett's position in Berkshire Hathaway, which accounts for more than 50% of the portfolio, there are three dividend stocks that occupy a significant space in the foundation's holdings.

Waste Management

It may not be the most glamorous sector, but waste management is essential to the functioning of the entire company. No matter what happens to the economy, municipalities have no choice but to pay companies to get rid of mountains of trash, even if those costs increase. Waste Management $WM+1.1% remains as one of the biggest players in this space.

WM stock has more than doubled over the past five years

The company operates about 260 active landfills and about 340 transfer stations in the United States. WM serves residential, commercial and industrial end markets and is also a leading recycler in North America. This dominance leads to very impressive profitability. In the second quarter alone, the company generated free cash flow of $503 million and net income of $587 million.

Management is forecasting 10% revenue growth for the year. This growth should stabilize at slightly above 5% in the coming years. The company has solid competitive advantages that could help it remain an industry leader. Specifically, there are significant barriers to entry, as it can cost up to $1 million to build a landfill and finding a suitable site brings with it many complications.

Waste Management's dividend, which currently offers a yield of 1.5%, has grown for 18 years in a row. The company paid nearly $1 billion in dividends last year, and its roughly $2.5 billion in free cash flow for 2021 means the dividend should be safely locked in. In addition to this dividend payout, WM has also been repurchasing its own shares for a long time, and continued to do so this year when the company bought back $520 million worth of stock.

Walmart

Because grocery stores were considered indispensable businesses, Walmart $WMT+1.5% was able to keep its more than 4,700 U.S. stores open throughout the pandemic. Not only has the company increased profits and market share since COVID swept the planet, but its reputation as a low-cost retailer has led more consumers to visit its stores in an effort to save money during times of rising prices.

Five-year price chart of WMT stock

Consumers generally tend to spend cautiously during a recession. Many people start buying lower priced goods. They also usually eliminate discretionary spending. Instead, they usually spend more money at grocery stores, home improvement stores, discount retailers and auto parts stores.

Walmart has steadily increased its dividend for the past 49 years. Its annual payout is currently $2.24 per share, a dividend yield of 1.6%.

Caterpillar

Caterpillar $CAT-0.8% is a cyclical company, unlike the previous two. Its sales and earnings tend to rise and fall in line with general trends in the global economy. So it should come as no surprise that Caterpillar faces some short-term risks associated with the slowdown in the global economy, not least the cooling construction market in China.

CAT shares are up more than 56% over the past five years

Within the engineering sector, Caterpillar is best known for its construction machinery. However, it also has a large raw materials segment and investors should not overlook its power and transportation equipment segment (oil and gas, power generation, industrial gas turbines, locomotive engines).

In all this, Caterpillar is making progress in its goal to reduce the cyclicality of its business by increasing service and aftermarket parts revenues. The company is also doing a great job of offsetting increased costs.

After announcing an 8% increase in June, Caterpillar's quarterly dividend is currently $1.20 per share and offers a yield of 2.5%. The company has raised its annual dividend 28 years in a row.

DISCLAIMER: All information contained herein is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.

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