CenturyLink Inc's Earnings: This High-Dividend Stock Is Impressive

In the last several days, several of the local telecom companies reported earnings. Of the three major players, CenturyLink's (NYSE: CTL  ) results speak for themselves. The company keeps proving its worth.

That was quick!
One of the core issues with local telecoms has been their inability to report real revenue growth. Of CenturyLink's peers, Windstream reported a revenue decline of 2%, and Frontier Communications (NASDAQ: FTR  ) witnessed a 4% decline. Yet CenturyLink managed overall annual revenue growth of 0.6%.

While top-line growth of less than 1% isn't going to make investors think of CenturyLink as a growth stock, it's a significant win for the company. Even AT&T (NYSE: T  ) and its stronger brand name reported an annual wireline revenue decline of 0.4%.

What was more impressive was CenturyLink's ability to improve both its residential and business revenue. On the residential side of things, CenturyLink reported revenue was flat, whereas Frontier's annual consumer revenue declined by almost 4%.

While AT&T outperformed on the consumer side with a 4.3% annual revenue increase, the fact that the company showed an overall wireline decline of 0.4% suggests that business results were less than stellar. In a similar show of weakness, Frontier reported a decline in business revenue of 4.3% year over year.

As though CenturyLink operates in a different industry, the company's business revenue has improved from a 1% annual increase six months ago to a 3.6% increase this quarter. The bottom line: CenturyLink has better top-line growth, and it's supported by strong consumer and business performance.

Impressive losses
It might sound crazy to suggest that any company losing customers is a good thing. However, in the local telecom business, voice-line losses are a part of life, and a company that loses less could be seen as winning the game.

To say that CenturyLink is doing better than its peers in mitigating voice-line losses is an understatement. CenturyLink reported a 33% lower rate of losses than Frontier, and a 51% slower rate of loss than AT&T. Since voice lines are a significant cash generator for each company, keeping these customers longer is a significant competitive advantage.

Rewarding shareholders, and a safe dividend
When CenturyLink made the decision last year to cut its dividend and redeploy this cash to share repurchases, the market didn't like the news. The stock took a nosedive of more than 20% on the news.

CenturyLink is proving that this was the right move at the time. First, the company has retired relatively more of its shares over the last year compared to its peers. On an annual basis, CenturyLink's share count is down more than 7%.

By comparison, AT&T and Frontier show share counts down 5.3% and up 0.2%, respectively. Given that CenturyLink pays a higher yield than AT&T and its dividend appears safer than Frontier, fewer shares should mean better earnings per share in the future.

Speaking of dividends, CenturyLink's core free cash flow payout sits at about 48% compared to 54% at Frontier, or 92% at AT&T. The big difference between these three companies is their capital spending.

While AT&T's capital expenses increased significantly compared to last year, Frontier cut its CapEx by 29%. CenturyLink's CapEx is more stable and leads to a more stable payout ratio. Given that CenturyLink gives investors a yield of nearly 6%, the stock looks more attractive than AT&T's yield.

The Foolish bottom line
While Frontier's yield is certainly higher, the company's unstable CapEx and weaker core performance make the dividend much less of a sure thing. CenturyLink offers investors a nice yield and real revenue growth, and management appears focused on rewarding shareholders. Before earnings, it looked as though the stock's run might just be getting started. After the report, it seems like the market agrees.

On the hunt for dividends? Don't miss these top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2954874, ~/Articles/ArticleHandler.aspx, 8/29/2015 3:29:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Chad Henage

Chad is a self professed tech nerd and has been investing for over 20 years. He follows nearly everything in the technology and consumer goods sectors, and is a huge fan of the Peter Lynch investing style. He has over 1,000 published articles about stocks and investing. You can follow Chad on Twitter at @chadscards1274.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:03 PM
CTL $27.04 Up +0.30 +1.12%
CenturyLink, Inc. CAPS Rating: ***
FTR $5.08 Up +0.15 +3.04%
Frontier Communica… CAPS Rating: ***
T $33.29 Down -0.15 -0.45%
AT&T CAPS Rating: ****