Tobacco companies were getting their butts kicked. Cheap imported smokes were cutting margins. Litigation's tab kept mounting. If it weren't for the high dividends, would anyone other than fiscal rubberneckers even look at this sector? cheap cigarettes

That's why R.J. Reynolds' (NYSE: RJR) bid for British American Tobacco's (NYSE: BTI) cigarettes stateside operations is brilliant. No, Reynolds' putting up $2.6 billion marlboro cigarettes in cash and stock for a 58% stake in the combined company won't solve all the industry's problems, but it certainly won't hurt buy cigarettes.

If you can't collude, marlboro cigarettes consolidate. With Altria (NYSE: MO) now the other guy, the three domestic tobacco leaders will become two. That won't stop the shipment of inexpensive cigarettes from overseas or help throw the scent off health-related litigation; however, it should make it easier to resist dabbling in pricing wars cigarettes.

Still, folks who bought into the sector cheap cigarettes chasing puffy payouts need to be careful. The average yield of the three tobacco players is 6.5%, but readers of our Motley Fool Income Investor know that you can't always judge an income investment by the size of its quarterly distribution. The sector's turnaround is still hazy and investors are best served by waiting for the smoke to clear. Cigarettes Store.