Soaring interest rates and the prospect of a global recession weighed on the stock market in 2022, especially on growth stocks. The S&P 500 index has shed 18% of its value year to date. 

Despite this downturn, high-yielding dividend stocks held up and generally performed better than the broader market. The tobacco company Altria Group (MO -0.39%) is one example. Down just 8% year to date, it has fared well as investors rotated from growth stocks to dependable dividend payers.

And with 53 consecutive years of dividend raises, the Dividend King is as reliable a payer as there is. Let's take a deeper dive into Altria Group's fundamentals and valuation to articulate why it deserves a spot within an income investor's portfolio.

Market dominance continues to yield decent results

When Altria Group released its financial results for the third quarter (ended Sept. 30) late last month, the company again delivered for shareholders. It recorded $5.4 billion in revenue net of excise taxes during the quarter, which was down 2.2% year over year.

At first blush, this seems like a negative. But these results were skewed by the Ste. Michelle Wine Estates business being included in last year's results and not this year's, due to the sale that occurred last October. Removing the $172 million that the company's wine business generated in the year-ago quarter, Altria Group's revenue was up 1%. How was this slight revenue growth from the large-cap company made possible? 

Altria Group's Marlboro is the top-selling cigarette brand in the United States, with 42.6% total retail share as of Sept. 30. Along with lesser-known premium cigarettes and discount cigarette brands, the company's total retail share of the U.S. combustible tobacco market held strong at 48.1% for the third quarter.

Altria's leadership in the U.S. tobacco market allowed for price hikes to be passed on to consumers during the quarter. This offset the decline in domestic cigarette volumes, which pushed the smokeable products' segment revenue net of excise taxes 0.4% higher year over year to $4.8 billion in the quarter.

Led by double-digit percentage growth for the oral nicotine pouch brand known as on!, Altria Group's oral tobacco segment reported shipment volumes of 201.4 million cans and packs for the quarter. This was up 1.3% over the year-ago period. Paired with favorable pricing, this led the segment's revenue net of excise taxes to surge 7.7% higher year over year to $640 million during the quarter.

Altria Group posted $1.28 in non-GAAP (adjusted) diluted earnings per share (EPS) in the third quarter, which was a 4.9% year-over-year growth rate. Thanks to efficient cost management, the company's non-GAAP net margin increased 170 basis points year over year to 42.5%. Along with a 2.3% reduction in its outstanding share count to 1.8 billion via share repurchases, this is how Altria Group's adjusted diluted EPS growth exceeded the growth in revenue net of excise taxes.

As the company's rapidly growing on! brand becomes a larger share of its business, analysts believe this will support annual growth of 4.2% in adjusted diluted EPS over the next five years.

A person smokes a cigarette during the COVID-19 pandemic.

Image source: Getty Images.

The mountainous dividend is well supported

Altria's 8.6% dividend yield is the third highest in the S&P 500 index. Despite the stock's yield being five times the index's 1.7% average, the dividend is surprisingly safe.

It's backed up by a dividend payout ratio that is set to come in around 75% in 2022, which is a bit below Altria's targeted ratio of 80%. Since the company has an ample margin of safety, the dividend should grow at least in line with earnings. A market-crushing dividend with mid-single-digit annual growth potential is a recipe for success for income investors.

A quality business at a deep discount

Altria Group is a slow and rather steadily growing business in terms of revenue and earnings. Yet the stock has been underappreciated by the market, which has led to underwhelming returns over the last five years.

The company's forward price-to-earnings (P/E) ratio of 9.1 is meaningfully lower than the tobacco industry average of 12.7. Unlike its other peers, including Philip Morris International, the concern is that Altria Group's next-gen nicotine products won't be successful enough to offset volume declines in the core cigarette business. 

But the volume and market share of the on! brand is growing. And if marijuana is legalized on the federal level in the next decade, Altria Group would be favored to capitalize on this event with its ownership stake in the Canada-based cannabis company Cronos Group. This makes it a compelling buy for income investors comfortable with its risk profile.