Why Coca-Cola Is Right for Your IRA

Gasp! In less than two weeks it will officially be time for this Fool and some of his money to part ways.

Tax time is that dreaded time of year for a lot of investors, not just me, as Uncle Sam comes rapping on your door to collect his share of your income. The great thing is, there are ways you can still reduce your tax liability for 2012 while not actually kissing your money goodbye. Intrigued? Let me tell you how.

Up until April 17, you can make a retroactive contribution to your retirement account or even open a traditional IRA or Roth IRA. Depending on your income and marital status, retirement account contributions to a traditional IRA can be used as a tax deduction against your 2011 income. While that's a nice short-term boost to your bottom line, the real advantage is that these IRAs allow your investments to grow either tax-deferred, in the case of a traditional IRA, or completely tax-free, with a Roth IRAs. There's no magic formula for determining which one's best since everyone's situation differs, so I highly recommend you examine the differences between the two.

Once you've selected which IRA is right for you is when the real fun begins. Although you can trade as often as you'd like within an IRA, these retirement accounts favor a longer-term approach. Today, I want to share with you why Coca-Cola (NYSE: KO  ) is my pick to give you the best bang for your buck in your tax-advantaged IRA.

Why I like it
I'm guessing I couldn't just get away with saying "it's Coca-Cola" and have that be enough, so I'm going to let a few of these facts from Business Insider do my talking for me:

  • An astounding 94% of the world's population recognizes the red and white Coca-Cola logo.
  • Of all the beverages consumed around the world, 3.1% are Coca-Cola products.
  • Coca-Cola makes so many different beverages that if you drank one per day, it would take you more than nine years to try them all.
  • There are 33 non-alcoholic beverage brands that generate more than $1 billion in revenue. Coke owns 15 of them.
  • Around the world, the average person consumers a Coke product every four days.

That's just a small snippet with regard to how dominant Coca-Cola really is, but it speaks volumes to what makes a great long-term investment: brand recognition.

According to Interbrand, a research firm that monetizes a brands value based on future earnings potential, innovation, global reach, and economic risk, Coca-Cola maintains its position at the No. 1 brand in the world. Based on Interbrand's data, the Coca-Cola brand is worth an estimated $71.1 billion. At No. 3, Microsoft (Nasdaq: MSFT  ) , a software giant that controls a vast majority of the worldwide operating system market, is more than $10 billion behind Coca-Cola in value. If you're curious, PepsiCo. (NYSE: PEP  ) lined up in the No. 22 spot on Interbrand's rankings, with a brand value of $14.6 billion. If it seems as though Starbucks (Nasdaq: SBUX  ) is on every corner in your neighborhood, remember that it has a long way to go, since it barely cracked the top 100 of Interbrand's list.

There are inherent advantages to being No. 1, which include a robust advertising budget that's nearing $3 billion and control of 42.8% of the carbonated-beverage market share relative to Pepsi's 31.1%. Although healthier eating movements have swept across the U.S. and created backlash against some of Coke's sugar-laden products, the company has responded with a healthier line of beverages targeted at a more health-conscious public. These actions have ensured continued growth while Pepsi is struggling to keep up with Coke and smaller rival Dr Pepper Snapple Group (NYSE: DPS  ) .

Why it belongs in your IRA
If my Foolish colleague Brian Stoffel didn't convince you that Coke belongs in your retirement accounts with his fictitious tale of Glon Mert, then perhaps I need to point out in more detail just what a monster benefit its dividend can offer over the long-term.

Whether or not you remembered to buy the birthday cake, Coca-Cola turned in its 50th straight year of dividend increases last month. There are only 11 companies in existence with a longer streak of consecutive dividend increases. Here's a glance at Coke's payout over the past 20 years:

Source: Dividata. Note: 2012 payout based on author's extrapolation of $0.51 quarterly payout.That's a beautiful sight if this stock is sitting in your IRA -- especially if you're using the dividend proceeds to reinvest into the stock. Over the past 20 years, Coke has provided its investors with 10.4% annualized dividend growth, and it shows no signs of slowing. Its payout ratio is exactly 50% based on Wall Street's expectations for fiscal 2012 EPS of $4.08, leaving plenty of room for continued growth in its distributions.

Source: Dividata. Note: 2012 payout based on author's extrapolation of $0.51 quarterly payout.

That's a beautiful sight if this stock is sitting in your IRA -- especially if you're using the dividend proceeds to reinvest into the stock. Over the past 20 years, Coke has provided its investors with 10.4% annualized dividend growth, and it shows no signs of slowing. Its payout ratio is exactly 50% based on Wall Street's expectations for fiscal 2012 EPS of $4.08, leaving plenty of room for continued growth in its distributions.

Finally, it's been more than 10 years since Coca-Cola has reported a loss. That loss, which came in March 2002, stemmed from a change the company made in the way it accounts for acquisitions, and it took a large writedown because of it. Sans the accounting change, it has been more than a decade since Coke has lost money.

Foolish roundup
Coca-Cola has all of the tools it needs to take a spot in your IRA for a very long time. It has the brand recognition to drive sales, the pricing power to outpace inflation, and the product diversity to outlast any recession thrown its way. As a bonus, it's a favorite of the Oracle of Omaha. Don't let Uncle Sam take your hard-earned cash -- give Coca-Cola another look before April 17.

Luckily for you, Coke isn't the only stock that could lead you to a comfortable retirement. Our motley analysts have identified three stocks that could help you retire rich. Find out their identities for free.

Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. He actually doesn't drink soda. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Coca-Cola, PepsiCo, Microsoft, and Starbucks. Motley Fool newsletter services have recommended buying shares of Coca-Cola, PepsiCo, Microsoft, and Starbucks, as well as creating a diagonal call position on PepsiCo, creating a bull call spread on Microsoft, and writing covered calls on Starbucks. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy that's highly recognized for transparency.


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