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It is always interesting to see how popular dividend stocks trade ex-dividend. While most investors have a long-term outlook many traders often try to capture the dividend by buying the stock and selling calls before the ex-dividend date.

The S&P 500 is up over 25% since September of last year, but dividend stocks have consistently been the best performing stocks in the market over the last several years.

One of the most popular dividend stocks is Altria (NYSE:MO).

(www.thestreet.com)

Altria and Philip Morris International (NYSE:PM) have consistently been the best performing tobacco stocks over the last several years, and these stocks are up over 40% in the last year.

Still, while Altria recently announced a 7.3% dividend increase, the stock has sold-off hard over the last several weeks after the company went ex-dividend.

(www.thestreet.com)

Altria often sells off after it goes ex-dividend, but the stock has sold-off nearly 5% in the last several days, and over 10% in the last month.

I've written several negative articles about Altria over the last couple months arguing that the stock is likely overvalued and unlikely to be able to continue to raise the dividend at current rates because of significant long-term debt poor interest rate coverage.

Still, Altria should be able to borrow cheaply over the next several years if rates remain low, and the company's cash flow is steady near-term.

This is why I think the company's recent earnings report and legal victories present a good short-term buying opportunity for investors simply looking for income.

Altria has faced rising federal and state taxes, lower smoking rates, and ongoing class action litigation over the last several decades. The company has resolved the class action suits brought by the States, and the Department of Justice recently lost its attempt to impose massive federal fines against big tobacco, but the tobacco industry still faces civil litigation. Individual plaintiffs seeking significant compensatory and class-action damages continue to bring suits in states such as Florida, where the Engle cases are ongoing.

Altria's two biggest recent threats have been aggressively marketed discount cigarettes by competitors Lorillard (NYSE:LO) and Reynolds (NYSE:RAI), and civil litigation brought by individual plaintiffs.

Altria lost significant market share to Lorillard and Reynolds over the last several years, and the company has only recently begun to consistently take market share at the lower end by aggressively marketing the company's discount brands such as L&M. Altria recently reported nearly 25% volume growth in its discount L&M brand this past quarter. Lorillard and Reynolds also reported anemic recent market share growth as well.

Altria and other U.S. tobacco companies recently also won several important legal victories. First, these companies defeated the recent attempt by the FDA to impose graphic labels. The FDA has been seeking to impose and number of new regulations on big tobacco, and the recent victory likely suggests that federal regulatory authority over the tobacco industry will be limited moving forward.

Second, Altria also won a significant recent victory in New Hampshire by getting the state Supreme Court to overturn a lower court decision certifying a class-action suit against the company for falsely marketing cigarettes as lights. The FDA recently banned the use of the term light, and a number of lawsuits have emerged from the recent regulatory decision. The New Hampshire Court decisions will likely be precedent for future cases based on recent regulatory decisions as well.

To conclude, Altria's long-term debt and significant market share will likely limit the company's revenue and dividend growth if rates and inflation rise in coming years. The threat of increasing inflation from the Fed and ECB's recent actions has also caused some sector rotation out of dividend stocks, and the company's dividend came at the wrong time. While Altria will face a tough long-term operating environment, the company's recent legal victories and successful new discount products make the stock a sound short-term income investment.

Source: Altria: Perfect Storm Creates Opportunity