I Can't Quit You, Big Tobacco

Big Tobacco is being hit by challenges across the spectrum -- lawsuits, declining smoking rates, and new packaging rules -- but some companies have been able to claim victories of a sort.

Altria (NYS: MO) received a mistrial in a Missouri class action lawsuit that sought almost $1 billion in damages. The plaintiffs alleged that Altria misled consumers that its Marlboro Lights cigarettes were less harmful than normal smokes. According to The Wall Street Journal, the company faces 18 other similar cases across the U.S., including three that are class actions.

But the law firm representing the plaintiffs vowed to bring the case back to trial, since eight of 12 jurors supported damages, one vote shy of what was required.

And the lawsuits just keep on coming. (That's all part of the reason that Altria is the most-watched tobacco stock.)

In West Virginia, a trial began to resolve some 600 smoking-related personal-injury cases. The suit targets Altria; Reynolds American (NYS: RAI) , the second-ranked U.S. tobacco company; and Lorillard (NYS: LO) . Among other issues, the jurors are tasked with determining whether cigarettes are defective products and whether the companies failed to disclose the dangers of smoking.

With increasingly stringent smoking regulations and ongoing lawsuits, what's a tobacco investor to do?

The tobacco companies themselves are turning to alternative smokeless products such as snus. With a social stigma increasingly attached to smoking and more prohibitions on public smoking, such oral smokeless tobacco offers an interesting alternative.

In a bid to tack on incremental revenues, some companies have even ventured into smoking-cessation aids. For example, Reynolds acquired Niconovum in 2009.

Also on the horizon are non-traditional tobacco forms, including those by Star Scientific (NAS: CIGX) . The company focuses on dissolvable tobacco products and is also developing a process for curing tobacco that is non-carcinogenic.

But any such alternative products comprise just a small portion of these giants' revenue streams.

One answer is to turn abroad, but be careful. British American Tobacco (NYS: BTI) might sound like a good alternative, but the company owns about 42% of Reynolds American, and so is at least indirectly exposed to the litigation.

A better alternative is Philip Morris International (NYS: PM) . This American company receives all its revenue outside the U.S. and controls about 27% global market share (excluding China and the United States). It also owns seven of the world's top 15 tobacco brands. And it's an absolute dividend dynamo, plumping its most recent dividend by 20%. That's part of why I own it in what I call the World's Best Dividend Portfolio. Follow the link to see all my selections.

As an income investor, I can't quit Big Tobacco, even if it's facing challenges in the U.S., so I'm looking overseas to find my long-term dividend fix. I'm not the only one, either. The Motley Fool's own Stock Advisor team has compiled a special free report called "Secure Your Future With 11 Rock-Solid Dividend Stocks." Anyone interested in boosting their portfolio returns with dividends should take a look.

At the time thisarticle was published Jim Royal, Ph.D., owns shares of Philip Morris. The Motley Fool owns shares of Philip Morris and Altria.Motley Fool newsletter serviceshave recommended buying shares of Philip Morris and creating a bear put ladder position in Lorillard. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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