Is CenturyLink Stronger Than Windstream and Frontier?

CenturyLink (LUMN 0.41%) will release its quarterly report on Wednesday, and shareholders haven't seen much of a recovery ever since the telecom cut its dividend earlier this year. Yet even though many put the high-yielding stock in the same category as rural telecoms Windstream (WINMQ) and Frontier Communications (FTR), CenturyLink arguably had different motives for slashing its payout, and as a result of the move, CenturyLink might be healthier than its rivals.

The biggest challenge that CenturyLink, Windstream, and Frontier have faced is holding onto customers in their traditional landline voice offerings. In general, as telecoms have lost their voice customers to wireless phones, they've had to try to make up lost revenue through offering Internet broadband and video products instead. Yet the competition for those products is a lot fiercer. Can CenturyLink do better than Windstream and Frontier in holding onto its legacy customers? Let's take an early look at what's been happening with CenturyLink over the past quarter and what we're likely to see in its report.

Stats on CenturyLink

Source: Yahoo! Finance.

Did CenturyLink make the right move by cutting its dividend?
Analysts in recent months have cut back on their views on CenturyLink earnings, reducing their third-quarter estimates by $0.03 per share and their full-year 2014 projections by double that amount. The stock has followed those estimates down, falling 5% since early August.

CenturyLink didn't get off to a good start to the quarter. Although its second-quarter net income more than tripled, sales fell 2%. Even worse, CenturyLink gave negative guidance for the remainder of the current year, cutting both its expected range of earnings per share and its full-year sales. The poor results justify the company's move to cut its dividend, and they're also consistent with the pressures that Windstream and Frontier have felt recently. All three companies are struggling to find growth even in a declining landline market.

Yet CenturyLink has some things going for it that Windstream and Frontier don't. Frontier has already cut its dividend twice, yet its payout ratio remains uncomfortably high, leading some to believe further dividend cuts are imminent. Meanwhile, Windstream has stubbornly held its dividend unchanged for years, but its 12% yield looks increasingly unsustainable. Yet CenturyLink has taken the money it saved from its dividend cut to implement share repurchases that have led to falling share counts. Moreover, CenturyLink has done a better job than Frontier and Windstream at retaining voice customers while also boosting broadband and video subscriber counts.

Still, things aren't easy for CenturyLink. As if the company didn't already face enough competitive pressure from traditional telecom rivals, CenturyLink is now seeing further competition from technology companies. Google (GOOGL 10.04%) chose Provo, Utah, as one of its sites to provide Google Fiber broadband service, even over CenturyLink's objections about Google's having acquired a local city-owned fiber-optic network in order to move forward with the project.

In the CenturyLink earnings report, watch to see how well the company does with its cloud-computing infrastructure business. With more exposure to higher-growth areas than Windstream or Frontier, CenturyLink has the ability to gain ground even if its rivals continue to falter.

Click here to add CenturyLink to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.