If you can get past the “sin stock” stigma, this tobacco company is doing everything right and kicking off a solid dividend to boot says Todd Johnson of Investing Daily.

Tobacco stocks as a whole are recession-resistant, providing safety and robust dividend yields, as well as respectable growth.

Case in point: Lorillard (LO) is firing on all cylinders, with the stock at 52-week highs. The stock’s total return so far in 2012 is 26.3%, with a 4.5% dividend yield.

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Lorillard was founded in 1760 in Greensboro, North Carolina, where the company still has its headquarters and all its manufacturing facilities. Lorillard is the oldest and third-largest maker of cigarettes and consumable tobacco in the US, with five brand families: Newport (its flagship brand), Kent, Maverick, Old Gold, and True.

The company’s Newport label is the second-largest cigarette brand and the number-one menthol brand in the US. Lorillard makes and sells 43 products in all, with differences in price, packaging, target-audience positioning, cigarette length, flavor, and taste.

In the face of increasing anti-smoking initiatives tied to public health, Lorillard recently expanded its portfolio to include electronic cigarettes, with its $135 million acquisition in April of bluCigs, a company that makes tobacco-free electronic cigarettes that don’t emit smoke, cigarette smells, or ash residues.

Lorillard in the first quarter of 2012 increased its US cigarette market share from 14.1% to 14.5%. The addition of bluCigs is anticipated to boost corporate sales in future quarters.

Management and sales efforts are focused on offering electronic cigarettes through the company’s vast distribution network. BluCigs will operate as a separate company within the Lorillard family. With this acquisition, Lorillard hopes to get into a new growth market within the cigarette sector and expects to significantly expand sales of bluCigs by leveraging Lorillard’s extensive sales, marketing, and distribution infrastructure.

Lorillard reported first-quarter net sales of $1.5 billion, down 0.6% from the first quarter of 2011. Lorillard sold 2.5% fewer units, but made up for volume declines to some extent with higher sales prices.

Despite lower production, cost of sales still rose 1.1%, while operating expenses saw a 7.4% increase, led by higher legal costs tied to class action anti-tobacco litigation. Profits were also hit by an $11 million increase in interest expenses stemming from new, higher-interest debt that was issued in the third quarter of 2011.

Reported first-quarter net income was $223 million, down from $248 million in the first quarter of 2011. Earnings per share (EPS) reached $1.70, from $1.71 in the first-quarter of 2011. Earnings were affected by a $7 million expense tied to an unfavorable recalculation of tobacco litigation settlements.

Lorillard grew its cash reserves to $1.9 billion, up 18.1% from first-quarter 2011. Total assets were up 11.4% to $3.3 billion, and long-term debt was marginally lower at $2 billion. It repurchased 1.6 million shares in the first quarter, at a cost of $188 million, and concluded its $750 million share-buyback program announced in August 2011.

Lorillard has consistently paid quarterly dividends, and raised dividends from 92 cents per share in the third quarter of 2008 to $1.55 in the first quarter of 2012.

Lorillard’s most recent dividend was $1.55 per share ($6.20 annually), paid June 11. As of July 18, shares closed at $139.64 with a dividend yield of 4.5%, a price-to-earnings ratio of 16.5, and a market capitalization of $18.2 billion.

Lorillard’s second quarter should be stellar, as management continues to implement corporate stock buybacks. The icing on the cake will be if the company can continue to take domestic cigarette market share. Buy Lorillard up to $141.

Editor's Note: Are tobacco company's days numbered as emerging markets turn to developed markets and developed markets have few smokers? Or are ecigs the 21st Century equivalent of candy cigarettes, becoming a gateway for non-smokers to get involved with tobacco products?

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