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The Altria Group (NYSE:MO), the leading cigarette manufacturer in the United States, reported a $1.23 billion net profit in the second quarter of this year. That is a solid 179 percent increase over the same quarter the previous year. Despite a weakening economy and strong competition, the stock has performed amazingly well, posting a 22 percent increase in the past year. These statistics are relevant given that cigarette sales are down in the United States. Consumption of tobacco in the American market has fallen to less than half when compared with Japan and Europe. As well as cigarettes, Altria's holdings include smokeless products, cigars, wine, beer, and financial services. Experts attribute the company's ability to maintain a steady growth and solid dividend production to its diverse holdings and to the introduction of new smokeless products to replace dwindling cigarette usage. In short, the company has been able to compensate for lost tobacco revenue in a way that nearest competitors Reynolds American (NYSE:RAI), and Lorillard (NYSE:LO) have been unable to.

Part of the reason for Altria's impressive performance to date is due to the separation of Kraft Foods from the parent company. In March of 2007 Altria spun off its remaining stake in Kraft Foods (KFT) to its shareholders. For each share of Altria they owned, shareholders received 0.692 shares of Kraft. The removal of Kraft improved the company's balance sheet. The spinoff reduced the company's debt and allowed the company to buy back as much as $40 billion worth of its shares. In March of 2008 the company spun off Philip Morris International (NYSE:PM), again giving its shareholders shares of the now separate company as compensation for their lost revenues in Altria. The reasoning behind the latter spin off was sound. It allowed the new company to manufacture tobacco products unencumbered by legal and public relations problems in the United States. Both moves combined to make Altria a smaller company, but one that is now more manageable and profitable.

Enticing to investors is the fact that Philip Morris/Altria has increased its annual per share dividend 46 times in the last 44 years. The company informed investors this month that "Altria Group's target dividend payout ratio is approximately 80 percent of adjusted earnings per share. The present annualized dividend rate is $1.76 per share." 80 percent is a hefty payout to investors and the company still has plenty of cash flow for research and development, growth, CapEx, acquisitions, debt reduction, and share repurchases.

Over the past three years, Altria's stock price has outperformed its industry peers, Lorillard and Vector Group (NYSE:VGR). The company's tobacco products remain strong despite increasing excise taxes and anti-tobacco legislation. The stock is an attraction for investors when times are less than easy in the market. Its robust 5 percent dividend remains a popular way to gain income while waiting out the sometimes unnerving fluctuations in the market,

At the end of May, Altria's CEO Michael Szymancyk retired. Martin Barrington has taken over the top spot. Barrington, who was also offered a seat on the board of directors, has been with the company since 1993. It is unlikely that things will change much under his leadership. The company has a proven track record with investors and analysts alike and a sound business plan in place. To quote an old adage, 'if it isn't broke, don't fix it,' and Altria is far from being broken.

Despite the myriad problems confronting cigarette companies, including health concerns, tax hikes, smoking bans and negative advertising, Altria has managed to maintain a strong earnings platform by implementing various business strategies to compensate for possible lost revenue. Analysts and investors are bullish on this stock and with very good reason. The company may not have the financial clout of Google or Apple but it is a reliable investment and is likely to stay so for the long term. The attractive price of the stock, trading at $33.64 as of October 2, 2012, coupled with the surety of a dividend on your investment, makes this a solid investment for the long term.

Source: Altria Group Equals Solid Dividends