Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

August 4, 2010 - Altria Group, Inc. (MO-NYSE) through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. It primarily sells cigarettes under the Marlboro,Virginia Slims, and Parliament brands; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands, as well as Marlboro; and machine-made large cigars and pipe tobacco.

This used to be Philip-Morris, but the name was changed when the company spun off Kraft and Philip Morris International in 2007 and 2008 respectively. Now the company owns Philip Morris USA, John Middleton and Philip Morris Capital Corp. Cigarettes and other tobacco products were 95% of revenues in 2008. It acquired US Tobacco in January of 2009.

There's plenty of cash here, $854 million in the latest report. That's always good news for investors looking for income. The dividend is $1.40 a year for a yield of 6.30%. The payout takes 83% of earnings. Next quarterly dividend payment will be in October with an ex-dividend date in September.

The tobacco industry remains under fire. Litigation is still a problem but RICO (racketeering and other criminal activities) is no longer being applied to prosecute the companies. With RICO gone, one of the more sizable lawsuits against the industry is not a major threat. However, some lawsuits are still pending judgment, most notably the Engle case in Florida which is waiting a ruling as to whether certain findings in that case can be used against all of the tobacco industry, not just the company in the suit. Altria benefitted from a decision by the Supreme Court not to review a case that sought damages for racketeering, one that would have cost $280 billion.

But there are new concerns. Now the industry is under FDA (Food and Drug Administration) regulation. It's currently studying menthol cigarettes and their consequences. On top of more regulations, the industry faces ever higher taxes as government budgets seek sources of revenues. Further, demand for cigarettes continues to wane.

Altria raised its prices in early May. Because its the market leader, it often takes the lead in pricing. Its Marlboro and Copenhagen (smokeless) brands continue to sell well, even as many retailers cut back shelf space for cigarettes due to falling demand.

Earnings have improved with $1.66 in 2008, then $1.76 in 2009. This year consensus from 13 analysts is $1.89, then $2.01 next year. Quarterly earnings are due next on October 20. Look for 52 cents a share for the third period compared to 48 cents in last year's third. For the final quarter, look for 45 cents vs 39 cents for the same period in 2009.

Most likely growth for all tobacco companies will come from smokeless products, in the form of chewing tobacco but also from electric or electronic cigarettes which have no flame, tar, carbon monoxide or ashes. Nicotine is delivered in the form of vapor smoke.

More numbers: Market Cap is $46.07 billion. Trailing P/E is 13.33 while Forward P/E is 11.02. Price to sales ratio is 2.74. Price to book is 10.12. Book value is $2.18. For the last 12 months Operating margin was 37.28% while Profit margin was 20.72%. Return on equity was an eye popping 88.02%. Return on assets was 10.96%. Total debt is $12.18 billion or 73% of capital. Current ratio is $1.69. Beta is a very low .38. The stock is up 26.41% in the last 12 months. There are 2.08 billion shares outstanding. Institutions own 64.60% of them.

Income investors should feel comfortable with MO. It has plenty of cash, very high return on equity, and a history of paying good dividends. While the dividend takes quite a bite out of earnings, the company's strong cash flow and commitment to returning value to shareholders suggests the payout is safe and may even be increased soon.

- Company Web site: www.altria.com

- Ted Allrich