Shares of Reynolds American (RAI) fell 2% on Oct. 19 after its third-quarter earnings missed estimates on both the top and bottom lines. Revenue rose 1.6% annually to $3.21 billion, but it missed estimates by $100 million. Adjusted EPS rose 10.9% to $0.61, but that came in $0.04 below expectations.

The company also announced that CEO Susan Cameron, who returned to the top job over two years ago, will retire at the end of the year -- casting some uncertainty over Reynolds' future.

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Reynolds American has declined 12% over the past three months on lackluster growth, concerns about new e-cigarette regulations, and fears that rising interest rates will cause investors to dump slow-growth income stocks. However, I believe it could still be a great time to buy Reynolds for five key reasons.

1. A solid, sustainable dividend

Reynolds pays a forward yield of 3.9%, which matches Altria's (MO 0.24%) 3.9% yield. Reynolds has raised its dividend every year since 2009 and has raised its dividend three times since closing its $25 billion acquisition of Lorillard last June.

Its current quarterly dividend of $0.46 (75% of its adjusted 3Q earnings) was set based on a target payout ratio of about 80%. That's slightly higher than Altria's payout ratio of 77%, but it leaves plenty of room for future dividend hikes.

2. Trading at a discount to its peers

Low interest rates caused many high-yielding blue-chip stocks to rally, which inflated their valuations while depressing their yields. Reynolds, though, trades at a discount to its peers with a comparable yield.

Reynolds trades at just 12.5 times earnings, which is lower than Altria's P/E of 21.5 and the industry average of 21.4 for cigarette companies. Reynolds' forward P/E of 18 is also slightly lower than Altria's forward multiple of 18.5. Philip Morris International (PM -0.32%), which only sells its products overseas, has a much higher trailing P/E of 23 and a forward P/E of 19.5.

3. It's insulated from overseas headwinds

Reynolds, the second largest domestic tobacco company after Altria, generates most of its revenue from the United States. This insulates it from a strong dollar (which has been gobbling up PMI's revenues), while the strong U.S. economy and low oil prices support cigarette sales.

The U.S. cigarette market might seem tough because of declining smoking rates, which have been sliding over the past five decades. However, Reynolds and Altria both offset those declines by raising prices, cutting costs, and buying back stock. That's why Reynolds' revenue rose just 2% between 2012 and 2014 (its last full year without Lorillard), while its earnings jumped 15%.

Looking ahead, analysts expect Reynolds' revenue to rise 18% this year (boosted by Lorillard) and another 4% next year. Earnings are expected to improve 17% this year and 11% in 2017.

4. Market share growth and niche dominance

Altria and Reynolds hold a near-duopoly in the domestic cigarette market, but Reynolds' market share is still growing. During the third quarter, Reynolds' retail cigarette market share rose 0.3% sequentially to 34.6%. Altria's total market remained flat sequentially at 51.4% last quarter.

Reynolds' top-selling "drive" brands are Newport, Camel, Pall Mall, and Natural American Spirit. Newport grew its market share 0.4 percentage points annually to 13.9%, as Natural American Spirit's share rose 0.3 points to 2.3%. Both brands appeal to specific niches -- Newport is the best-selling menthol brand in the country, and Natural American Spirit appeals to younger smokers with its "additive free" cigarettes.

Reynolds also dominates the e-cigarette market with Vuse, the most popular e-cig brand in America. While regulatory headwinds could throttle the e-cigarette market's growth, Reynolds remains better positioned than Altria and other rivals if they continue displacing traditional cigarettes.

5. An experienced new leader

CEO Susan Cameron already retired once in 2009, after serving as Reynolds' CEO for five years. She returned to get Reynolds' growth back on track with the expansion of Vuse and the Lorillard acquisition, but she was always expected to retire again after grooming a successor.

That successor is Debra Crew, a former U.S. army captain and PepsiCo (PEP -0.59%) executive who is currently COO of Reynolds American and president of the R.J. Reynolds Tobacco. Crew's experience leading Reynolds' core subsidiary should ensure a smooth leadership transition on Jan. 1.

The key takeaway

Reynolds American has never been an exciting stock, but I believe it has a solid dividend yield, is undervalued relative to its peers, and has a wide moat against potential challengers. Therefore, investors looking for a stable income play should take a closer look at this under-appreciated tobacco stock.