9: Ecolab Inc. (NYSE:ECL)
Percent of Bill Gates’ Portfolio: 2.9%
Dividend Yield: 1.2% Forward P/E Ratio: 23.3x (as of 11/18/16)
Sector: Basic Materials Industry: Specialty Chemicals
Ecolab Inc. (NYSE:ECL) sells a wide range of sanitizers, cleaners, lubricants, cleaning systems, dispensers, water treatment products, and on-site services. Over 90% of Ecolab’s business is a recurring revenue stream (e.g. customers consumer Ecolab’s sanitizers and need to reorder).
The company’s products and services are used by customers in practically every industry (e.g. restaurants, hotels, hospitals, Laundromats, manufacturing plants, oil wells, etc.) to keep their food safe, maintain clean environments, and optimize water and energy use.
Ecolab is in more than 1 million customer locations in 172 countries around the world. Just over half of Ecolab’s revenue is generated in North America. Another 24% is from Europe, 12% from Asia Pacific, and 8% from Latin America.
Ecolab is a fantastic business with an excellent moat. The company maintains more than 6,700 patents covering its unique technologies, which help it sell its solutions at 10-20% price premiums compared to competitors’ offerings.
While Ecolab’s initial cost to customers is higher, its products deliver meaningful savings over time (e.g. less waste, greater energy efficiency) that make them cheaper overall.
However, the company’s biggest advantages are its dependable service quality and people. At the end of the day, Ecolab is selling service and consistency (e.g. food needs to be kept safe, water needs to be kept clean, etc.).
Ecolab has nearly 50,000 employees, and more than half of them are in customer-facing roles. These employees visit customer locations each year and help reinforce the value of Ecolab’s products and systems being used by the customer.
On-site visits also allow Ecolab to cross-sell new products to existing customers and expand the amount of business it does with each one.
Ecolab estimates that its addressable market is $100 billion in size and highly fragmented – Ecolab is the biggest player with 14% market share.
Rivals and new entrants are unlikely to break Ecolab’s massive service network, breadth of products and services, and long-standing customer relationships.
Bill Gates likes stable, durable businesses with plenty of opportunity for continued growth, and Ecolab checks all of these boxes.
The company’s dividend track record is also excellent. Ecolab has paid cash dividends on its common stock for 79 consecutive years and increased its dividends paid every calendar year since 1986, making it a member of the S&P Dividend Aristocrats Index.
Ecolab Inc. (NYSE:ECL)’s dividend has compounded at a 14% annual rate over the company’s last 10 fiscal years, and management last increased the dividend by 6% in December 2015.
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10: FedEx Corporation (NYSE:FDX)
Percent of Bill Gates’ Portfolio: 2.9%
Dividend Yield: 0.9% Forward P/E Ratio: 15.3x (as of 11/18/16)
Sector: Transportation Industry: Air Freight Transport
FedEx Corporation (NYSE:FDX) began operations in 1973 and has grown to provide transportation delivery services to more than 220 countries and territories.
FedEx Express (express distribution services) accounted for 52% of the company’s revenue last year, followed by FedEx Ground (33% – North American small-package delivery services), FedEx Freight (12% – North American provider of less-than-truckload services), and FedEx Services (3%).
Providing each of these services provides FedEx with an advantage. Approximately 96% of U.S. revenue comes from customers of two or more operating companies.
As a logistics business, FedEx derives its moat from being a world-class operator with very efficient business processes.
Delivering packages is largely a density game. The operator with the most routes and touch points is able to more efficiently deliver products to save customers time and money.
With one of the largest distribution networks in the industry (e.g. a fleet of more than 47,000 vehicles), FedEx enjoys solid profitability and has proven to be extremely durable.
New competitors would need to spend billions of dollars and take years of time to replicate the company’s distribution network.
FedEx Corporation (NYSE:FDX) has also increased its dividend for more than 10 consecutive years, making it part of the Dividend Achievers Index. The company raised its dividend by 60% in June 2016 and has plenty of room for continued dividend growth thanks to its low dividend payout ratio near 20%.
