Billionaires make their fortunes in all sorts of ways. For some, it came partly thanks to their ability to lead or invest in excellent companies. These are the billionaires I want to focus on today. That's because the non-billionaires out there (there are way more of us than there are of them), can sometimes learn something by looking at the kinds of equities that billionaires invest in, including dividend stocks.
There is no shortage of corporations that pay dividends, but they aren't all created equal. Which ones do billionaires like? Let's look at three dividend stocks that got the investing attention of some billionaires: Gilead Sciences (GILD -2.70%), Microsoft (MSFT -2.45%), and Apple (AAPL 0.52%).
1. Gilead Sciences
Gilead Sciences is a leading biotech company with a particular focus on the HIV drug market. It also features among the holdings of Citadel Advisors, a hedge fund run by billionaire investor Ken Griffin. What makes Gilead Sciences an attractive dividend stock? It isn't just the company's yield, although, at 3.6%, it is much higher than the average for the S&P 500 of 1.74%.
Neither is it that Gilead Sciences has raised its quarterly payouts by 31.6% in the past five years. The best part about this biotech is how solid and reliable its business is. Gilead Sciences' portfolio of HIV medicines makes it one of the absolute leaders in this market. For instance, Biktarvy is the top prescribed medicine in this area in the U.S. Descovy is equally successful in the HIV PrEP market.
Gilead Sciences' latest breakthrough in this area is called Sunlenca, a six-month, long-acting regimen that happens to be the first of its kind. Many HIV medicines are administered monthly or bi-monthly. A bi-annual option will undoubtedly attract many eligible patients. Meanwhile, Gilead Sciences' oncology unit is making headway thanks to products such as Trodelvy.
The company has plenty of programs in the pipeline that will allow it to increase its revenue and earnings over time. Like its peers in the biotech industry, Gilead Sciences offers essential products -- lifesaving medicines no one wants to cut back on even when the economy is in shambles. This factor allows the drugmaker to generate somewhat stable revenue and earnings.
That's why income-seeking investors definitely can't go wrong with this stock. And with a cash payout ratio of 44.5%, Gilead Sciences has more than enough cash to cover increasing dividend payments.
2. Microsoft
Microsoft needs no introduction, nor does its co-founder and former CEO, Bill Gates. The billionaire largely made his fortune as a major shareholder and the head of this company. Even though he retired from this role long ago, Gates' nonprofit organization, the Bill & Melinda Gates Foundation, owns shares of the tech giant.
Why should dividend-seeking investors consider Microsoft? Let's first look at the company's operations. Microsoft is known for being the leader in computer operating systems, with an undisputed and large lead over any serious competitor.
The suite of productivity tools it offers is ubiquitous and has become entrenched in the lives of millions of people, granting the company high switching costs. That includes some like Microsoft Teams that rose in popularity amid the pandemic. It is difficult to imagine Microsoft being knocked out of its leading position in this market.
But Microsoft's business extends beyond that. It has become one of the largest players in the cloud computing industry through Microsoft Azure. There is a large opportunity here as the cloud market is rapidly expanding thanks to the advantages it confers to businesses, which include lowering costs and improving efficiency.
Then there is Microsoft's gaming unit, which will remain an important player whether or not the blockbuster acquisition of video game giant Activision Blizzard goes through.
Microsoft's leadership in multiple industries, including at least one with excellent prospects (cloud computing), makes its business strong and capable of sustaining its dividend. The company's quarterly payouts have soared by 61.9% in the last half-decade. Even with a low yield of just 0.95%, Microsoft is an excellent dividend stock.
3. Apple
Apple has been a regular on the list of holdings of billionaire Warren Buffett's Berkshire Hathaway for a while now. The Oracle of Omaha has even referred to the tech giant as "probably the best business" he knows in the world. There is a good reason for that. Apple has a knack for transforming (often by improving) already existing tech, putting its own spin on it to render it even more popular.
That's what it did with the iPhone, which remains its biggest money maker. Apple's brand name is so powerful that it generates decent sales even in challenging economic times like last year. Its products hardly fall under the "necessary goods" category and have plenty of cheaper competitors. But beyond Apple's hardware business, the company's services segment is perhaps its most promising.
Apple offers Apple Pay, Apple TV+, iCloud, Apple Music, and much more. Last year, the company's total active devices reached the 2 billion mark. That is a massive number. Investors should expect Apple to find new ways to monetize this ecosystem in this highly profitable and high-margin segment that will continue growing for years. But what about Apple's dividend?
The company's yield of 0.55% does not look very impressive either, but with a solid business backing it and the regular and massive cash flow Apple generates -- which currently stands at $97.5 billion -- Apple's payouts are secure. The tech giant has increased its dividends by 26% in the past five years. Its low cash payout ratio of 15.3% leaves plenty of room for more hikes.
Investors can buy Apple's stock for both growth and income.
