CenturyLink (NYSE:LUMN) and AT&T (NYSE:T) have a few things in common. They are both major telcos with chunky dividends that are sustainable in the near term. Neither company is gun-shy about making big-ticket acquisitions to move the needle. They are both also meandering when it comes to organic growth, making the beefy quarterly distributions that much more important as investors ride out the lulls.

The similarities pretty much end there, making this an interesting battle to see which one will outperform the other in the year ahead. AT&T is clawing its way higher, hitting fresh 52-week highs earlier this month. CenturyLink is in a funk, having shed nearly 40% of its value over the past year. Is AT&T the right choice as a rising activist-fueled turnaround play, or is CenturyLink the better buy as a depressed investment waiting for its big break? Let's size them both up to see which one comes out on top.

AT&T logo with a cloud of dust behind it and OUR THING lettering.

Image source: AT&T.

Making the right connection

CenturyLink has had a rocky relationship with its shareholders lately. Yield chasers cleared out earlier this year after CenturyLink cut its dividend rate by 54%, slashing its quarterly payouts from $0.54 a share to just $0.25. It's also not running on any of its cylinders, as all five of its business units posted declining revenue in CenturyLink's latest quarter.

The good news for CenturyLink is that the independent local exchange carriers sector is still commanding a hearty 7.8% yield. More importantly for folks interested in dividend stock investing, this will be the first year since 2010 that CenturyLink earns more than the sum of its distributions. A payout ratio below 100% is critical for a sustainable distribution policy.

CenturyLink's business is fading, but these are small backward steps. Despite retreating in all five of its business units, overall revenue declined just 5% in its latest quarter. CenturyLink also sees continuing cost-saving synergies from the $34 billion deal for Level 3 that it completed two years ago.

AT&T is also far from perfect. Its legacy wireline business keeps shrinking, and the same can be said about its DirecTV subscriber count. Reported and adjusted net income declined in its latest quarter, though AT&T's guidance calls for modest single-digit growth in adjusted earnings per share for the entire year. It also doesn't help that the only reason AT&T is hitting new highs is that an activist investor with a $3.2 billion stake is calling for changes. It's a backhanded compliment, as Wall Street thinks an outsider has better ideas for turning things around at Ma Bell.

The good news for AT&T is that its flagship wireless business is still growing, and the 5G tide could raise all ships that invest in the enhanced telecommunications platform. The WarnerMedia deal is artificially inflating top-line growth, but there are a lot of juicy assets there that will pay off in the "content is king" world that we live in.

AT&T gets the overall nod here, even though both telcos have what it takes to beat the market given that their compelling valuations are hefty distributions. AT&T's yield of 5.4% is a lot lower than CenturyLink's, but after 35 years of hikes, it's a more reliable payout with room to keep growing than what we have at CenturyLink. AT&T wins here, but it's a lot closer than one would probably expect.