Philip Morris ( MO) raised its quarterly dividend 10.3% to 64 cents, preserving its status as one of the top-yielding stocks in the Dow 30. The company's board met in August and as has been traditional, with the exception of 1997, a dividend boost was forthcoming. (In 1997 the company needed cash to cover a state settlement over tobacco-related public health claims.) The new dividend is at an annualized rate of $2.56, the high end of what analysts were expecting. At $49.10, the stock currently yields 5.25%. "They keep growing underlying profits, and that drives underlying cash flow, and the company is committed to giving that back to its shareholders," said Robert Campagnino, senior tobacco analyst at Prudential Securities, which doesn't do investment banking for tobacco companies. Philip Morris has been able to achieve annual operating profit growth of about 8% to 10% -- which correlates to its dividend hike -- from several fronts, Campagnino said. It owns 84% of Kraft ( KFT), one of the world's largest food companies, which has seen annual volume growth of 2% to 3%. Philip Morris also has some synergies left over from its Nabisco acquisition. And though revenue in its domestic tobacco business is lagging, operating income for the division is up on higher pricing, and revenue and operating income for its international cigarette business is also up. Analysts have fretted for years about legal fees as Philip Morris and other tobacco companies fight off a variety of lawsuits. But Campagnino said the legal fees are simply the cost of doing business in the tobacco industry. "The operating profits are after corporate expenses, which includes legal fees," Campagnino said. Though Philip Morris' legal fees are a closely guarded secret, Campagnino believes they could be about $200 million a year. And while Philip Morris pays a high dividend relative to its Dow peers, Campagnino noted that domestic tobacco companies Carolina Group ( CG), RJ Reynolds ( RJR) and UST ( UST) yield more. In general, the best dividends come from utility stocks, which often yield about 6% to 7%. REITs are second at about 6%, followed by tobacco companies with a 5% to 6% yield. In midday trading, Philip Morris was up 2.78% to $49.23.