Universal Corp. (NYSE:UVV) is a misunderstood and undervalued company. Unlike other tobacco companies such as behemoth Altria (NYSE:MO) and rapidly-growing Lorillard (NYSE:LO), Universal does not manufacture cigarettes. Universal actually grows the tobacco used by cigarette producers.

While the consumption of cigarettes is declining around the world according to the sales figures of tobacco companies such as Philip Morris International, according to the World Health Organization (WHO) the consumption of tobacco products is actually increasing globally. This is good news for Universal as a tobacco producer, as it means the company is likely to note higher sales from the rising demand for tobacco worldwide .

Aside from the prospect of rising sales due to the rising global demand for tobacco, Universal has many other desirable traits as an investment. For example, the company announced within its fiscal first half results that it was increasing its dividend payout for the 43rd consecutive year; this puts the company in an elite league of dividend aristocrats.

That said, investors have raised concerns during the first half of this year about Universal's declining income as a lower volume of tobacco was shipped. Indeed, the company's year-over-year operating income declined by 55% for the first six months of this year.

Nonetheless, investors need not be worried as this lower income was a result of shipment timings and had nothing to do with demand. Universal's management has stated that it expects shipment volumes to return to normal levels during the second half of the year.

What's more, Universal has recently embarked on a program to increase the company's tobacco leaf and production capacity within Mozambique. Similarly, other smaller-scale projects are currently in development in several other origins to enhance local processing and leaf services. All in all, the company plans to spend $50 million increasing its processing capacity this year .

If you can't beat them, join them
One of the most disruptive technologies to emerge during the past decade is the electronic cigarette. Indeed, electronic cigarettes pose a huge threat to Universal's business model.

As the saying goes, though, if you can't beat them, join them. That's exactly what Universal has done. Universal's subsidiary, Virginia Tobacco Company, has joined with Avoca, one of the world's premier botanical extraction companies, to form AmeriNic. AmeriNic's goal is to produce liquid nicotine for the electronic cigarette industry. The company is focusing on producing high quality, United States Pharmacopeia (USP) grade liquid nicotine using fully traceable and compliant tobaccos.

This partnership is a really exciting endeavor for Universal. Expansion into electronic cigarettes opens up a huge new market for Universal, allowing the company to benefit from the global drive by all major tobacco companies to bring electronic cigarette offerings to market. With every tobacco company trying to get in on the act of electronic cigarette production, Universal should be able to easily acquire customers. 

First mover
Lorillard acquired electronic cigarette start-up Blu Ecigs back in April 2012. The company was one of the first domestic tobacco companies to get an electronic cigarette product on the shelves.

As a result, the company's electronic cigarette sales have taken off. The company reported that its fiscal third quarter revenues from electronic cigarettes had exploded 350% year-over-year to over $60 million and its gross profit had nearly quadrupled. What's more, the company also began its expansion into other markets acquiring SKYCIG, a UK-based e-cigarette business, at the beginning of October.

These impressive growth figures were in my opinion only possible because Lorillard had very few competitors when it first launched its electronic cigarette. However, these numbers highlight the size of the market Universal has available to it.

Just starting out
While Lorillard is making impressive progress with its electronic cigarette offering, peer Altria has only just begun its rollout.

Altria revealed its electronic cigarette product during August under the MarkTen brand name. The product was rolled out into 3,000 stores across Indiana as an initial test market. Management is keeping quiet on the sales figures, but CEO Marty Barrington called it a successful launch of a new product, stating that, "We are really pleased with what we have learned in Indiana."

The company plans to expand sales of MarkTen to about 2,000 stores in Arizona starting December. If Altria can achieve similar sales growth to that of Lorillard, the company could be gearing up for lucrative times ahead .

Foolish summary
Overall, Universal is relatively misunderstood and could be set for a period of strong growth. Rising tobacco consumption around the world, combined with improved tobacco production facilities, will drive sales higher over the next few years. What's more, the company's push into the rapidly growing electronic cigarette market could result in even faster growth.

Fool contributor Rupert Hargreaves owns shares of Altria Group and Universal Corp. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.