Altria (MO -0.12%) yields 5.2%, and the company has generated steady returns for its investors over the last five years or so. The maker of Marlboro and Merits looks like a solid bet for decent dividends and returns in 2014.

For those investors who worry that Altria's price has thrown its valuation out of safe territory, they need not be concerned since its valuation compares very favorably with those of peers Reynolds American (RAI), Phillip Morris (PM -0.79%), Lorillard (LO.DL) and British American Tobacco.

The number of smokers in the U.S. has been on a steep decline. Altria has, however, avoided a revenue cliff with the help of popular chew-and-spit products, such as leading snuff brands Skoal and Copenhagen. Income from Altria's smokeless products rose about 14% in fiscal 2014.

Companies can sometimes increase their dividend payouts to hide serious flaws such as slowing growth or declining profits. Altria is not one of these companies. The company has been cheekily raising its cigarette prices without sending its customers packing. As a result its profit margin has been steadily improving since 2010.

The company's growing earnings have also kept its dividend well covered and given it cash to burn on research into new and promising products such as e-cigarettes. Forecasts for future bottom-line growth have reassured many industry analysts that Altria's share price can still climb further in 2014.

Altria not only pays out generous dividends, it has an unusually high payout ratio. Its dividend has climbed 50% over the last five years. Dividend growth is important in this era of rising interest rates, and Altria's 5.2% dividend yield is among the best for moderate-risk stocks.

Solid results
Altria reported solid full-year fiscal 2013 results which prove that big tobacco is still an industry that is very capable of robust growth. The firm's earnings per share jumped by 7.7% to hit 2.38%. EPS for fiscal 2014 is expected to be around $2.51 to $2.58, which translates into 5.5% to 8.4% bottom-line growth.

Although Altria recorded a 4.3% decline in the number of Marlboros shipped, its revenue for smokeless products jumped by 5.1%, while operating income improved by 7% to hit slightly more than $1 billion.

As a U.S.-only company, Altria was spared from the negative effects of currency fluctuations that plagued its peers. At the same time, the company is more vulnerable to rampant anti-smoking efforts as well as numerous personal-injury lawsuits on its U.S. home turf. The good news, however, is that much of this has been going on for a long time, which means it is already priced into Altria's shares. Tough regulation, on the other hand, has helped to weed out weaker competition, and Altria has learnt not only to survive but thrive in the tough environment. 

The firm's wine subsidiary, St. Michelle, recorded strong top-line growth of 8.6% and an even more impressive 13.5% bottom-line growth, while its investment in SABMiller brought in another cool $1 billion in profit.

Peer comparison
Philip Morris delivered rather lackluster results after unfavorable currency effects played havoc with its bottom-line. Unlike Altria, which has zero international exposure, Phillip Morris is a predominantly international company.

Philip Morris' results don't look too bad when you strip off unfavorable currency effects, since full-year top-line growth came in at 8.3% while the bottom line expanded by 10%. Without adjusting for the negative forex effects, however, Philip Morris' EPS growth drops to just 1.7%.

Philip Morris was not spared from the industrywide trend of declining cigarette shipment volumes. Its smoked product volumes shrank 2.7%, with volumes for its flagship Marlboro brand dropping 1.3%. This brand accounts for the majority of Philip Morris' sales and profits.

Big tobacco has remained a profitable industry despite declining cigarette volumes, thanks mainly to expanding profit margins. Tobacco companies such as Altria and Philip Morris have become adept at the art of using rising excise taxes to disguise price hikes.

Philip Morris has not been as lucky as its peers in this respect. The company experienced some margin compression due to higher excise taxes on a wide variety of its products which it was unable to offset with its own price hikes. The average amount of excise tax paid out by the company increased from 59.5% in fiscal 2012 to 61% in 2013. The company's operating margin consequently fell from 17.8% in fiscal 2012 to 16.9% in 2013.

Philip Morris expects its EPS to come in at around $5.02-$5.12 after adjusting for the negative effects of currency fluctuations, with higher EPS of $5.73-$5.83 when forex adjustments are excluded. This is lower than its fiscal 2013 EPS of $5.26. Currency fluctuations are therefore expected to shave off $0.71 from the company's bottom line in 2014, which is equivalent to 14% of its earnings.

Lorillard, the world's third-largest tobacco company, was one of the industry's better performers with its top line growing by 4.9% for the full year and its bottom line improving by 10.6%. The company increased its market share to 14.9%, the 11th annual increase in a row, riding on strong sales from its popular Newport brand. The company projects that its bottom line will grow by a healthy 15% in fiscal 2014 and a further 11% in fiscal 2015.

Despite the good growth, there are growing concerns over the future of menthol cigarettes. Lorillard's Newport brand is menthol-based and it accounts for 87% of the company's sales. From the look of things, the FDA is on the verge of taking drastic regulatory action against mentholated cigarettes. If this happens, Reynolds American and Altria will also suffer. Lorillard's huge reliance on menthol cigarettes, however, puts it at an elevated risk of a heavy sales slump if things pan out this way.

Foolish takeaway
Many investors are squeamish about investing in big tobacco because of ethical concerns. For investors who have no such scruples, Altria remains a great investment. The stock has all the qualities that an investor looks for in a good growth stock, and it comes with unusually low risk.