(FORTUNE Magazine) – It's never pretty when a blue-chip stock falls apart--especially when the rest of the market is surging. But that's exactly what's been happening to shares of tobacco giant Philip Morris, which just a few years ago was one of Wall Street's favorite stocks as well as one of America's most admired companies.

Over the past year, shares of Big Mo, as the company is known on the Street, have fallen from nearly $60 to about $25 because of tobacco litigation fears. That plunge has pushed up Philip Morris' yield to an eye-popping 7.5%--six times the yield on the typical S&P 500 stock and just a sliver below the payout on a BBB corporate bond.

Normally a stock dividend that rich is a good indicator that investors suspect the yield won't be paid much longer. And the reasons to worry about Philip Morris' future are unmistakable. Right now, a Florida jury is weighing a unique class-action lawsuit that could require tobacco companies to pay a lump-sum award in excess of $100 billion.

On the other hand, Philip Morris remains the No. 1 tobacco company in the U.S., with strong brands like Marlboro. Its P/E multiple stands at just seven. And cash flow remains robust. Plus most analysts believe a truly catastrophic judgment resulting in bankruptcy is extremely unlikely. "I'd rather own this company in a heartbeat than 70% of the Internet companies right now," says Scott Schermerhorn, a portfolio manager at Colonial Management Associates. "They are a powerhouse," agrees Emanuel Goldman, a global consumer analyst at Merrill Lynch. "They're king of the mountain now and they'll remain king of the mountain."

Still, jury trials are very hard to predict, and in this passionately antismoking atmosphere, the downside in Philip Morris is pretty steep. Says Tom Rath, portfolio manager of the Safeco Income Fund, who started selling his Philip Morris shares over a year ago: "I still don't really believe they'll be forced out of business. It's just that the tides have shifted enough that we no longer felt it was a place we wanted to be."

So what should investors do? Well, if you're hungry for income and don't have an ethical problem with owning a tobacco company, Big Mo's stock is pretty compelling. Remember, though, that high yields and high risks go hand in hand. And with the latest legal decisions rather than more predictable factors like revenues or profits moving the stock, be prepared for a ton of volatility even as the dividends roll in.

Holding Philip Morris right now also requires a leap of faith in the company's ability to wriggle out of its legal troubles. But in the meantime, you can rely on the fact that people are always going to want what's bad for them. As Merrill analyst Goldman says, "There are three things you can't keep people from doing: smoking, drinking, or messing around."