What: Shares of British American Tobacco p.l.c. (NYSE:BTI) gained 11% in July, according to data from S&P Capital IQ, as the cigarette maker got a boost from a strong earnings report.

BTI Chart

British-American Tobacco Monthly Stock Performance, data by YCharts.

So what: As the chart above shows, nearly all of the tobacco company's gains took place at the end of the month, following its earnings release on July 29. For the quarter, revenue increased 2.4%, to 6.96 billion pounds on a constant-currency basis, and adjusted earnings per share improved 3.9%, to 1.058 pounds in constant currency.

Like other tobacco companies, British American benefited from improved tobacco pricing. The acquisition of Lorillard by its associate business Reynolds American -- in which it owns a 42% stake -- also helped. Management promised a stronger performance in the second half of the year, and also said the company would raise its dividend, which already pays a 5.5% yield. 

The parent of brands like Dunhill and Lucky Strike noted that cigarette consumption declined in its markets by 3.5%, while its own volumes fell 2.9%, to 322 billion, indicating a gain in market share. Sharply increased excise taxes in countries such as Russia, South Korea, and Australia may have helped depress sales. The company's five key Global Drive Brands, which include Dunhill, Kent, Lucky Strike, Pall Mall, and Rothmans, saw volume growth of 6%, a strong sign that management is executing its strategy effectively.

Now what: With positive momentum both in sales and pricing, and Reynolds American benefiting from its recent acquisition of Lorillard, British American shares could continue to move higher. Despite declining overall tobacco sales, British American's profitability has remained high, with operating margins around 39%, and the stock has been a consistent winner since 2000, up more than 1,300%. British American also continues to expand with its 550-million euro acquisition of TDR, the leading independent cigarette manufacturer in Central Europe, and management plans to raise the dividend by 4% in September. 

All of these factors should help support the stock's performance going forward, making it a solid bet for dividend investors.

Jeremy Bowman 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.