Source: Philip Morris.

Among tobacco stocks, Philip Morris International (NYSE:PM) has long been a favorite among dividend investors willing to take on exposure to the tobacco industry. Unlike former parent Altria Group (NYSE:MO) and its domestic peers Reynolds American (NYSE:RAI) and Lorillard (UNKNOWN:LO.DL), Philip Morris International's presence in high-growth international markets seemed to be the perfect answer for investors who feared the increasingly hostile regulatory and consumer-advocacy environment within the U.S. market. Even as the stock has climbed, though, Philip Morris hasn't been able to avoid all of the negatives holding back tobacco companies worldwide. Let's look at three of the biggest potential obstacles that Philip Morris will need to overcome.

1. Philip Morris continues to face regulatory battles overseas.
One premise Philip Morris investors espoused from its first days as an independent company was that the internationally oriented company would avoid the litigation and regulatory hassles that its U.S. counterparts have struggled with for decades. Yet, that hasn't turned out to be true, as Philip Morris has had to deal with equally aggressive regulators in various markets around the world.

Source: Philip Morris.

For instance, in Europe, the European Union's new Tobacco Products Directive strengthened rules on the production and sale of tobacco products, including limitations on packaging, a ban on menthol and other flavored cigarettes, and new rules for electronic cigarettes and similar vapor products. Philip Morris sought to challenge these rules in late June, and the company won the right last month to have its case heard in the Court of Justice of the European Union. The process could take two years, though, before Philip Morris gets a definitive answer.

Similar regulatory battles have taken place in several areas, including Thailand, Australia, and Uruguay, and Philip Morris has had mixed success. Although Philip Morris managed to have a Thai regulatory requirement overturned that would have made warnings substantially larger, Australia plain-packaging rules have been upheld in courts. The uncertainty involved with these legal battles comes as a shock to many Philip Morris investors, who believed that avoiding the litigious U.S. system would be the answer to all of their concerns.

2. Shipment volumes in key areas of the world are still falling.
Philip Morris has fallen prey to the general trend toward lower cigarette sales worldwide, and that has put a ceiling on the amount of revenue it can raise. Although Philip Morris has substantial pricing power in several key markets, it nevertheless needs to sustain as much of its sales volume as possible in order to hold onto any extra money it can generate by charging higher prices.

In the first nine months of 2014, Philip Morris has seen falling cigarette volumes in three of its four main segments, with only the European Union managing to eke out a 0.1% rise. Eastern Europe, Asia, and the Latin America and Canada segments have all seen declines in volume of between 2.5% and 3.4%, and Japan, Canada, and Mexico have been primary culprits in hurting Philip Morris International's overall sales. Even more disturbing is the fact that the key Marlboro brand has seen shipments decline an even more dramatic 3.5% in the third quarter alone. Philip Morris has managed to boost its market share, showing the overall weakness in those markets, but nevertheless, the company needs to reverse those trends, or at least slow the rate of decline in order to maximize its profit potential.

Source: Philip Morris.

3. An ever-strengthening dollar could keep weighing on Philip Morris earnings.
One of the biggest headwinds Philip Morris has faced lately comes from the strength of the U.S. dollar. The company has had to reduce its guidance specifically because of the adverse currency translation impact to its top and bottom lines, and Philip Morris has the difficult decision of either trying to pass through price increases in order to keep its dollar-revenue unchanged, or accepting lower revenue in dollar terms by keeping prices stable in weakening foreign currency terms.

Many investors believe the recent dollar strength will have to reverse itself in due course, and historically, currency fluctuations have been cyclical. Yet market historians will remember that the decline of the U.S. dollar against key currencies like the Japanese yen and the euro took years, or even decades to play out in some cases. Given the relative strength of the U.S. economy and the weakness in key areas like Japan, Europe, and commodity-reliant countries like Russia, Philip Morris can't afford to assume that the foreign exchange markets will solve its problems.

Philip Morris International has given shareholders great returns in the past, but it still has a long way to go to overcome many of the challenges facing its tobacco business. Only if it can follow in the footsteps of its U.S. peers and manage to beat the regulatory press in large markets around the world will Philip Morris give investors everything they expect from the tobacco giant.

Dan Caplinger has no position in any stocks mentioned. 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.