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In these market conditions, consistent, reliable high-yields are fantastic. It's also great when that company has monopolistic characteristics and is valued cheaply. A stock that fits these traits is none other than Altria Group (NYSE:MO).

Although I believe there are many things to like, such as the sustainable high-yield, I think the growth prospects are so low that there has to be better investments out there. Although I don't necessarily think an investment in Altria is a terrible idea, I think there are other options that have significantly higher upside.

Here are some reasons why I believe Altria may be a value trap:

Increased Regulation - Although some aspects of new regulations are in favor of Altria, most are not. Government limitations on advertising give MO a large moat where new businesses can't easily enter the industry. Higher taxation however is a huge problem. Taxes on tobacco products are already at all time highs, and they are expected to go even higher, outpacing the rate of inflation. With Governor Patterson creating a 'fat tax', look for many states to increase taxes on Altria's goods. The taxes are easily justified and quickly passed, due to health concerns. Altria will have a tough time increasing prices to match the tax burden, which will cause even more users to dissent.

Pricing Problems - In addition to raising prices to offset the tax burden, MO will also have to raise prices to match inflation. This problem will be less bothersome because inflation may be low. But with the exponential increases in the money supply, deficit spending and bailouts, I wouldn't be surprised to see higher than normal inflation rates over the next few years. Altria could handle matching 3-4% inflation with price hikes, but 5-6% may be overpowering.

Lawsuits - The ever bothersome litigation has slowed in recent years, but the financial crisis may cause more people to look for 'easy' money. I believe most of the litigation problems have passed, but it is still a dark shadow that haunts over Altria's stock price. Altria has settled most existing lawsuits against them, allowing them to commit less capital towards them. Any increase in new lawsuits will hinder their advances.

Low Growth Possibilities - After spinning off possibly its best businesses - Kraft (KFT) and Philip Morris International (NYSE:PM), this may be the final rotting piece of business that no one else wanted. Operating mostly in the US, Altria's growth prospects are limited. With US Government taxes and legislation, in addition to consumers trending towards 'green' and 'healthy' goods, Altria may not be able to gain as many users as it loses. If this is the case, earnings will fall, and eventually, the juicy dividend.

So what's the solution? If you are still intrigued with the business model and the industry, I suggest you take a look at Philip Morris International (PM). Because the international markets are still on the tobacco train, they should be able to grow earnings much faster than MO, possibly in the high single digits over the next decade. It currently yields a manageable 5.8% and should be able to pay off debt faster than MO due to currency exchange rates.

Overall, Altria may be a good stock, but I think there are so many great stocks out there that I wouldn't weight it too heavily in your portfolio. If you still wish to, I suggest you use PM as an alternative.

Disclosure: Author holds no positions in any security mentioned in this article

Source: Altria: Value Play or Value Trap?