CenturyLink (NYSE:CTL) soared 6.4% on Thursday after the company announced first-quarter earnings that exceeded expectations. The company has seen a rather impressive 28% three-month stock gain as investors reallocate money into high-yield stocks and away from momentum stocks.

Nonetheless, CenturyLink is a company with bullish goals and growing competition from the likes of Google (NASDAQ:GOOG) and AT&T (NYSE:T). Therefore, given its forward dividend yield of 6.2% and its aggressive buyback program, should investors fear that CenturyLink's capital return program may be hurting its future?

CenturyLink is telling you something
CenturyLink is a large $21.3 billion well-established telecommunication services company. In the first quarter, it created $4.54 billion in revenue, which equated to growth of less than 1%.

With that said, CenturyLink has pretty much given up on finding explosive growth, and has elected to become a company that gives back to its shareholders. Specifically, it pays an annual dividend yield of 6.2%, and in this last quarter alone spent more than $600 million on buybacks and dividends combined.

Here's the problem: When a company has a quarterly EPS of $0.66, pays $0.54 in a quarterly dividend, and then spends another $0.50 plus per share in buybacks, there isn't a lot of cash left for growth, if any. CenturyLink had $850 million in free cash flow during the first quarter, and spent all but $200 million in giving back to shareholders.

Hence, CenturyLink's message is clear: "We're not in the business of creating shareholder value through growth, but will pay you to own our stock."

Why is this bad?
Essentially, we could poke holes at any of CenturyLink's many segments and make a case for why the company needs to make investments in order to protect its market share and to grow. But let's look at what might be the most vulnerable: the company's broadband business.

CenturyLink offers Internet speeds of up to 40 megabits per second (Mbps), and in its first quarter added 66,000 new customers from the fourth quarter to finish with 6.06 million total. In other words, this is a very important segment for the company, but one where CenturyLink is unable to make the investments necessary to keep pace with its peers.

Specifically, CenturyLink is facing growing competition from the likes of Google and AT&T. Google is in the process of building out its Fiber network -- already rolled out in two cities with 34 new territories on tap -- with speeds of 1 gigabits per second (Gbps). For those of you unfamiliar with these metrics, that's 25 times faster than CenturyLink's network.

Moreover, Google's Fiber has been so successful in its infancy that it has been able to require customers to sign-up in advance of the network even being built, and customers have responded with great enthusiasm. Initially, this was a project that was expected to cost Google up to $30 billion, but by capitalizing on high density areas and using the telephone poles of existing telecom companies, it has been able to cut back on costs, and many think Google could quickly become a dominant Internet provider in the next decade.

If that weren't bad enough, AT&T's U-Verse GigaPower is also in the process of speeding its delivery from 300 Mbps to 1 Gbps. Like Google, AT&T's presence with these speeds is limited, but the company recently announced plans to expand into 100 different cities in 21 metropolitan areas. Also like Google, GigaPower is a multibillion dollar project, but with that said, U-Verse is AT&T single most meaningful growth segment. Last year, it grew more than 20% and now accounts for 10% of the company's $130 billion of total revenue. Hence, it is very important.

Final thoughts
In regards to CenturyLink, broadband is just one example of many to illustrate large investments that need to be made that the company can not afford. Currently, and in the immediate future, CenturyLink's speed is up to par with other broadband competitors, but as AT&T and Google rollout their respective services, CenturyLink will be unable to compete in terms of speed.

This brings up the question of paying a 6% dividend: CenturyLink can not make the investments necessary to compete with such services because it's using all of its cash flow to return capital to shareholders. And with $20 billion in long-term debt, CenturyLink already has plenty of leverage on its balance sheet and may not be able to finance such investments. Investors likely wouldn't respond well to a public offering due to the company's policy of returning capital.

Therefore, in this particular instance, because of the industry in which it operates, a high dividend and lavish buybacks are actually a fundamental disadvantage, which does not bode well for long-term shareholders of CenturyLink. Hence, CenturyLink is returning too much capital to shareholders, and investors would be better served with a sizable reduction in its capital return program.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Google (C shares). The Motley Fool owns shares of Google (C shares). 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.