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By Dee Gill

Despite the best efforts of socially conscious investors, a tobacco company has become a popular way for so-called widows and orphans to collect income at a decent rate. Altria (NYSE:MO), whose dividend yields around 5.2% now, has generated relatively steady, strong returns for investors for the past five years. Today, the maker of Marlboros and Merits looks like one of the more conservative income bets in S&P 500 stocks.

MO Total Return Price Chart
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MO Total Return Price data by YCharts

Altria gets a One-Rolaids rating on the YCharts Dividend Stressometer, a bogus device that uses serious fundamentals analysis to measure risk in big dividend stocks. Most stocks paying large dividends make shareholders reach for antacids at times, because high dividend yields often come from troubled or slowing businesses (and by definition from out-of-favor stocks). One-Rolaids investments are most likely to create only a low level of stress. Two-Rolaids investments have a higher potential for causing moderate anxiety. Three-Rolaids investments are most likely to create serious heartburn.

Prior columns on in this series on big-dividend payers focused on healthcare-focused REITs with dividend yields of about 5.5%, HCP (NYSE:HCP) and Health Care REIT (NYSE:HCN), and on Windstream Holdings (NASDAQ:WIN) and its gigantic payout, yielding about 12.5%.

Although the number of smokers has declined drastically in the U.S., Altria has avoided the dividend-threatening problems of other passé businesses, like landline telephone operators. Revenue declines have leveled off with the rising popularity of its chew-and-spit products, like snuff brands Copenhagen and Skoal. Income from smokeless tobacco rose 14.5% in the first nine months of this year. Profit margins have been expanding since the company discovered that addicted smokers would endure price increases to buy cigarettes.

MO Gross Profit Margin (NYSE:<a href='http://seekingalpha.com/symbol/ttm' title='Tata Motors Limited'>TTM</a>) Chart
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MO Gross Profit Margin (TTM) data by YCharts

As a result, Altria’s growing earnings have kept the dividend well covered and left enough cash to fund debt and research into new products, like e-cigarettes. Forecasts for steady earnings growth have reassured most industry analysts that Altria’s share price can grow from here.

MO Payout Ratio (<a href='http://seekingalpha.com/symbol/ttm' title='Tata Motors Limited'>TTM</a>) Chart
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MO Payout Ratio (TTM) data by YCharts

The dividend itself is unusually attractive because the high yield is paired with a record of generous payout increases. Altria’s dividend is up 50% in the past five years, which is a bigger increase than what more popular dividend companies Coca-Cola (NYSE:KO) or Procter & Gamble (NYSE:PG) have given their shareholders.

MO Dividend Chart
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MO Dividend data by YCharts

Dividend growth is particularly important now because rising interest rates are likely to eat away some of the return that is obvious in the yield number. Also, Altria’s 5.2% dividend yield is far better than most anything of moderate risk that investors can find in the bond market now. Consider the Altria yield against the under 3% returns investors get on these bond funds of varying risk: the Vanguard Total Bond Market ETF (NYSEARCA:BND), iShares iBoxx High Yield Corporate Bonds (NYSEARCA:HYG), iShares Barclays 7-10 Year Treasury Bond (NYSEARCA:IEF), PIMCO Enhanced Short Maturity (NYSEARCA:MINT) and iShares Barclays TIPS Bond (NYSEARCA:TIP).

BND Dividend Yield (<a href='http://seekingalpha.com/symbol/ttm' title='Tata Motors Limited'>TTM</a>) Chart
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BND Dividend Yield (TTM) data by YCharts

Altria is not an international company, so its share price is more vulnerable to U.S. anti-smoking efforts and smoker lawsuits than its competitors. But much of this is in the past or already absorbed in Altria’s share price. Regulation has weeded out some weaker competition, and Altria has figured out how to make money in a hostile environment. The chance of further legislation coming out of our contentious Congress now seems slim.

A bigger investment risk here is whether Altria’s share price valuations have gotten out of hand, which would suggest a limit to share price gains in the future. But Altria’s shares are about as expensive on forward PE ratio comparisons as those of other big tobacco companies, like Philip Morris (NYSE:PM), Lorilland (NYSE:LO), Reynolds America (NYSE:RAI) and British American Tobacco (NYSEMKT:BTI).

MO PE Ratio (Forward) Chart
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MO PE Ratio (Forward) data by YCharts

Of course, a lot of investors would shun Altria’s big dividend at any level on ethical concerns about profiting off a highly addictive, highly dangerous product. But for income investors unperturbed by such issues, Altria shares are worth considering. Its big dividend is well covered by earnings, and expanding profit margins are helping fuel share price gains that add to the returns. It’s an unusually low-stress investment for such a high yield. And if you're intrigued, you can unleash some financial advisor tools on the stock.

Disclosure: None

Source: 5.2% Yield, Many Dividend Hikes: Got A Match?