If kissing someone who smokes is like licking an ashtray, then investing in the U.S. arm of Big Tobacco is akin to boarding a slowly sinking ship.

Nonetheless, judging by the market's initial reaction, it appears that market leader Altria (NYSE: MO) continues to win over easily impressed investors.

And indeed, there were encouraging aspects to Altria's first-quarter results.

On a reported basis, earnings per share jumped nearly 40%, to $0.39, although the adjusted gain came in at a lesser 7.7%. Bottom-line growth was driven by cost cuts, lower expenses related to the acquisition of smokeless-tobacco specialist UST, and higher earnings from Altria's equity stake in global beer giant SABMiller, among other factors.

At this point, Altria investors are no doubt familiar with the company's strategy of growing profits by boosting operating efficiency. In 2009, Altria cut $389 million in costs. In the recently completed quarter, management shaved off $43 million in expenses. And by 2011, the company expects to have achieved a total cost reduction of $1.5 billion, versus 2006 levels.

But what then?

Cigarette volume continues to decline. Adjusting for inventory shifts leading up to April 2009's federal cigarette excise tax hike, the recent quarter's volume fell roughly 11% (even without the adjustment, volume slipped by 0.7%). Yet today's economy is almost inarguably on firmer ground than it was a year ago. That consumers are nonetheless purchasing fewer Altria smokes underscores the extent to which the industry is beset by structural, rather than cyclical, decay.  

Die-hard Altria fans might counter by noting the company's growth potential in smokeless products, where brands include Skoal and Marlboro Snus. Well, let's see. After adjusting for tax-related inventory dynamics, promotional offers, and other factors, segment volume did rise about 5%. Trouble is, these products recently accounted for only 12% of companywide operating income, which means that segment growth is unlikely to fully offset declines in the much larger cigarette business. So overall, you've still got a company with eroding fundamentals.

But I know that, like a pack of Marlboro Reds placed perfectly at eye level behind the counter, Altria's 6.6% dividend yield demands at least a moment's attention. While one could argue that Altria's payout is safer than the double-digit yield of mortgage specialist Annaly Capital (NYSE: NLY), investors need also to note the rate at which dividends are increased.

Here, Altria's most recent dividend boost was a mere 2.9% -- well below the high single-digit increases of the recent past. That increase moves the payout ratio from about 75% to roughly 80% -- in line with management’s recent guidance. But this latest increase came just eight months after the prior one, and in August the company had lifted the divvie by more than 6%.

For contrast, consumer-packaged-goods company Procter & Gamble (NYSE: PG) just raised its dividend an inflation-trouncing 9.5%, while a diverse group including Wal-Mart (NYSE: WMT), CSX (NYSE: CSX), and Home Depot (NYSE: HD) recently raised payouts anywhere from 5% to 11%.  

But if your portfolio just can't kick the tobacco habit, at least consider trading up to Philip Morris International (NYSE: PM), where fundamentals indicate the possibility of something other than a slow and painful demise.

Editor’s Note: In a previous version of this article, the Fool erroneously suggested that Altria’s recent dividend increase was the company’s sole annual increase, when the company had, in fact, two increases over the past year . The Fool regrets the error.  

The Home Depot and Wal-Mart Stores are Motley Fool Inside Value recommendations. Philip Morris International and SABMiller are Global Gains selections. Procter & Gamble is an Income Investor pick. Try any of our Foolish newsletters free for 30 days.

Fool contributor Mike Pienciak holds no financial interest in any company mentioned in this article. The Fool has a disclosure policy.