CenturyLink (NYSE:CTL) seems on the cusp of regaining investors' confidence. Last year, when the company announced that it would cut dividends in favor of repurchasing shares, the market had a decidedly negative reaction. However, in the last few quarters, CenturyLink is moving in the right direction. To maintain this positive momentum, there are three trends that must be maintained.

Sometimes it is this simple
In the local wireline business, everyone knows the challenges of customers moving away from landlines to cell phones. Therefore, some investors avoid companies like CenturyLink because they are worried that the business is slowly dying.

This brings us to the first trend that CenturyLink investors need to watch. The company is actually improving its top-line performance. Six months ago, the company reported that revenue declined by just over 1%, and three months ago, this dropped to a decline of just under 1%. By comparison, Windstream Holdings (NASDAQ:WIN) posted a revenue decline of 3% in its most recent quarter.

CenturyLink's top line is being helped by decelerating losses at its consumer business, and business revenue has improved from flat results to real growth. Verizon (NYSE:VZ) faces some of the same challenges as CenturyLink. The best-case scenario would be for CenturyLink to match Verizon's recent performance.

Verizon reported that wireline consumer revenue declined by just 0.4%, with high-speed Internet and video additions both exceeding 8% annual growth. If CenturyLink can continue improving its top line, investors should be excited about the prospect of real growth from a local telecom.

Getting to the core of the problem
The second trend investors should keep an eye on is CenturyLink's rate of growth in its core businesses of high-speed Internet, video subscribers, and voice lines. In the last two quarters, CenturyLink has added high-speed Internet subscribers at a rate of about 2%. On the opposite end of the spectrum, Windstream posted a decline of 4% last quarter.

If investors are looking for a target for CenturyLink, the company should aim for the 10% growth in FiOS high-speed Internet that Verizon just reported. That being said, CenturyLink is besting both Verizon and Windstream when it comes to video subscriber additions.

While it's true that CenturyLink has far fewer video subscribers to its Prism TV service, the company has been growing this user base by between 13%-17% over the last six months. Verizon's FiOS video service grew by nearly 9%, and unfortunately for Windstream investors, the company trailed its peers again, reporting a 6% decline.

Of course, voice line losses are the bane of all local telecoms, and CenturyLink is not immune. However, in the last two quarters, CenturyLink's landline losses have improved from a nearly 6% loss rate to just over 5%. With Windstream reporting a 6% decline and Verizon doing even worse at a 7% decline, investors should be very happy if CenturyLink can continue improving on its losses in this area.

Steady as she goes
The third trend investors should watch for is CenturyLink's ability to keep its operating margin stable. In the last six months, the company's margin has stabilized at just under 15%. Given the challenges with voice line losses and relatively slow growth in the company's Internet business, a stable margin is a big win in this business.

While Windstream has a better operating margin at almost 22%, the company is suffering losses in consumer revenue, high-speed Internet, digital television, and voice lines. Surprisingly, Verizon's huge wireless business doesn't appear to be helping its landline margins. In fact, Verizon's operating margin on its wireline business is just 1.5%. The bottom line is that CenturyLink investors have a lot to look forward to, provided the company can maintain its momentum.

Final thoughts
Other companies in this space may have better margins, faster growth in certain areas, or higher yields. However, CenturyLink appears to offer investors a real chance at revenue growth from a local telecom. The company's yield of over 6% is better than Verizon's, and in today's low rate environment, every percent counts.

CenturyLink's stock has regained some of its momentum since the dividend cut decision. If these three trends continue, this run could just be getting started.

 

Chad Henage owns shares of CenturyLink and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. 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.