#3 Wal-Mart Stores, Inc. (NYSE:WMT)
Caterpillar is an industry leader. So is Bill Gate’s 3rd largest blue chip dividend holding, Wal-Mart Stores, Inc. (NYSE:WMT). Wal-Mart makes up 5.1% of Bill Gate’s portfolio. The company is the global leader in discount retail. Wal-Mart’s scale is impressive: the company generated over $485 billion in sales in the last 12 months.
Wal-Mart is a Dividend Aristocrat thanks to its 42 consecutive years of dividend increases. Wal-Mart’s long streak of rising dividends is evidence of its strong competitive advantage.
Wal-Mart’s price-based competitive advantage comes from its massive scale and efficient supply chain. The company buys in large quantities and demands discounts from its suppliers – Wal-Mart then passes these savings on to its customers.
Now is an excellent time to buy into Wal-Mart Stores, Inc. (NYSE:WMT) stock. The company is currently trading for a price-to-earnings ratio of just 14.8. The price-to-earnings ratios of several of Wal-Mart’s competitors are shown below for comparison:
- Target Corporation (NYSE:TGT) has a price-to-earnings ratio of 20.8
- Costco Wholesale Corporation (NASDAQ:COST) has a price-to-earnings ratio of 28.0
- Dollar General Corp. (NYSE:DG) has a price-to-earnings ratio of 22.1
- Big Lots, Inc. (NYSE:BIG) has a price-to-earnings ratio of 16.6
Wal-Mart has the lowest price-to-earnings ratio in the discount retail industrydespite being the industry leader. In addition to its low valuation, Wal-Mart also has a solid 2.7% dividend yield.
Wal-Mart performed exceptionally well through the Great Recession of 2007 to 2009. The company managed to increase its earnings-per-share each year through the Great Recession.
Wal-Mart Stores, Inc. (NYSE:WMT) grew its earnings-per-share at 6.2% a year over the last decade. The company currently has an above-average dividend yield, and scores high marks for safety and stability. In addition, the company appears undervalued at this time. Because of these factors, Wal-Mart is a favorite of The 8 Rules of Dividend Investing.
#2 Waste Management, Inc. (NYSE:WM)
Waste Management, Inc. (NYSE:WM) is the United States leader in waste management services. The company has a market cap of $22.5 billion and was founded in 1968.
This is the 3rd company in Bill Gates’ portfolio that is an industry leader, joining Caterpillar and Wal-Mart. Bill Gates has 5.4% of his portfolio invested in Waste Management.
Like Caterpillar & Wal-Mart, Waste Management also has a long dividend history. The company has increased its dividend payments each year since 2003.
Waste Management, Inc. (NYSE:WM) has a strong competitive advantage in the waste management services industry. The company’s unique competitive advantage comes from its established network of over 310 transfer stations, 260+landfills, and transportation fleet. It would cost potential competitors a huge up front amount to be able to match Waste Management’s extensive network.
Waste Management, Inc. has grown its earnings-per-share at around 5% a year over the last decade. The company should grow at least this fast over the next several years. Waste Management has opportunities to grow through bolt-on acquisitions of smaller local/regional collection services. As the company continues to grow, it should realize efficiency gains as well.
Waste Management, Inc. (NYSE:WM) currently has a dividend yield of 3.1%. The company’s 3%+ yield combined with expected earnings-per-share growth gives investors like Bill Gates expected returns of over 8% a year.
Waste Management’s forward price-to-earnings ratio is 18.3. The company is trading at about the same forward price-to-earnings ratio as the S&P 500. Given the company’s solid total return potential and relative safety, Waste Management appears fairly valued at this time.
