Heading into 2014, Altria Group (NYSE:MO) was one of my largest holdings. The stock comprised 14% of my IRA portfolio. This allocation got even higher as the year unfolded, because Altria stock rallied considerably. This made me uncomfortable, because tobacco companies face some strong headwinds that may make future growth difficult.

Because of this, I decided to cut back on my tobacco exposure by selling about half of my Altria shares recently. However, I still hold a position, because the stock still has merits that make it worth owning. The most prominent of which is the dividend. Altria is a famous dividend stock, having raised its dividend an amazing 48 times in the last 44 years. Altria stock has a 4.2% dividend yield at recent prices, which makes it a solid pick for investors who need income now, such as retirees.

As a young investor with a long time horizon, though, I'm equally as concerned about dividend growth over the next several decades as I am with current dividend yield. For these reasons, I may sell my entire Altria position -- especially if Altria's foray into e-cigarettes flops.

Few growth opportunities left for big tobacco
Smoking is on the decline in the United States because of rising public and regulatory scrutiny of tobacco. It's true that Altria has a large portfolio of other products, including chewing tobacco, wine, and an equity stake in brewer SABMiller. But let's be clear: Owning Altria stock is about cigarettes first and foremost. Altria's flagship Marlboro brand, and by extension its Philip Morris USA business, represents the vast majority of the company's revenue and profits. Altria's smokeable products represented 90% of its revenue and operating income in the most recent quarter.

Unfortunately, the decline of smoking is taking its toll. Altria's operating profit from smokeable products over the first nine months of the year is down 5% year over year. Altria has produced growth from its smokeless products and wine, as well as a significant dividend from its SABMiller investment, but these still aren't enough to offset the decline in smoking. Over the first three quarters, Altria's earnings per share are down 5%.

If smoking goes down more, Altria is going down right along with it. That is, of course, unless the company comes up with a way to replace its traditional cigarettes with a different product.

Are e-cigs Altria's best hope?
Altria's venture into e-vapor is through its subsidiary Nu Mark, which manufactures the MarkTen brand. Altria initially began a trial of its MarkTen products last year in Indiana and Arizona, but after satisfactory results there, rolled out the brand nationally. Through the end of last quarter, MarkTen achieved distribution in 80,000 retail outlets across the country, and according to Altria, the product was ranked in the top three e-vapor brands in the western U.S. by retail market share. This quarter, Altria plans to complete its national expansion to the eastern half of the country.

It's clear that Altria has grand ambitions for its e-cig business. Altria also purchased Green Smoke's e-vapor business for $110 million. Investors should hold out high hopes for the MarkTen brand now that it has national reach thanks to Altria's superb distribution capabilities. In addition, Altria believes its proprietary technology will be favored by consumers thanks to its differentiated design. The company maintains that its "FourDraw" technology provides a better user experience. Altria doesn't yet break out its e-cig business as a separate reporting segment, presumably because it still represents a fledgling operation. But if traditional smoking continues to decline, the e-cig business will become hugely important for the company's future.

Not selling out... yet
Even though I've halved my position in Altria, I'm still holding on. The main reason is Altria's dividend, which is among the market's very best. Altria stock currently yields a hefty 4.2%, and it manages to pass along high single-digit dividend raises each year, which is very attractive for investors. However, with the well-documented declines in smoking in the United States, I'm concerned about Altria's long-term future.

It's critical for Altria to innovate in new product categories if it's going to continue its reputation as a premier dividend stock. I invest in companies with the stated intention of holding the stocks for decades. If Altria can't make significant progress in e-cigs, I'm not sure it will still have a place in my portfolio.

Bob Ciura owns shares of Altria Group. 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.