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CenturyLink: High Yields, Reliable Growth For 2012

March 11, 2012 | About:

Since the birth of CenturyLink (NYSE:CTL) less than three years ago, it has made new acquisitions that have allowed it to compete against giants such as AT&T (NYSE:T) and Verizon (NYSE:VZ). 2012 will be a pivotal year for the company as it looks forward to new opportunities and continues to expand its influence in the United States. A strong dividend and steady growth in value make this stock attractive to long term income investors and in my opinion, it is worthy of consideration as an addition to any diversified portfolio.

In April of 2011, CenturyLink acquired Qwest Communications in a move that provided it with twice as many network access points and effectively doubled the size of its network. The addition strengthened CenturyLink's financial profile and gave it access to more resources that can be used to invest in expanding its network and acquiring more resources in the future that will allow it to become an even stronger company. Of CenturyLink's $4.6 billion in operating revenue for the fourth quarter of 2011, over $2.7 billion came from Qwest Communications, proving the value of its new acquisition to the company.

CenturyLink also finalized the purchase of Savvis at the end of April, giving CenturyLink the ability to offer more cloud computing solutions to its business customers. The merger also resulted in a combined 207,000 route mile fiber optic network that is allowing CenturyLink to expand its influence in the cable television market and put pressure on AT&T. In the fourth quarter of 2011, Savvis contributed about $260 million to CenturyLink's overall operating revenue.

Through its acquisitions, CenturyLink was able to realize an increase in operating revenue for the year of over double what it saw in 2010. It finished the year with operating revenue of $15.4 million, compared to the $7 billion for 2010, showing strong potential heading into 2012. Its increased revenue is only one point on a long list of accomplishments for CenturyLink in 2011.

It was able to increase its high speed internet customer base to 5.5 million strong and made a strong run in the cable television market as well. Expanded Prism TV subscriptions were up by 30% in 2011 compared to 2010 and CenturyLink increased its market penetration to 7% from 5% for the same period. As CenturyLink increases its market penetration, it will become a larger threat to AT&T, which runs its own fiber optic network and competes in the cellular market.

CenturyLink is a smaller player the communications sector, competing with Verizon and AT&T, which have market caps of $109 billion and $183 respectively. It operates nearly as efficiently as Verizon, however with an operating margin of 16.2% compared to Verizon's margin of 17%. AT&T operates at a margin of 9.5% and relies on its size to come out ahead, but CenturyLink is a leaner and more efficient company with the potential to put some pressure on AT&T in the future.

The acquisition of Qwest Communications will also help CenturyLink carve out a piece of Verizon's market. Verizon is the largest cellular provider in the United States and is partially owned by Vodafone (NASDAQ:VOD), which owns a 40% interest and is one of the largest phone providers in the world. While CenturyLink has its work cut out for it, I believe that it will gain traction in 2012 and offer stronger competition as the benefits of its 2011 acquisitions are fully realized.

As long as CenturyLink floats above its 200 day moving average of $35 per share, I think that it will continue to rise through the end of 2012 and into 2013 and CenturyLink's quarterly dividend of $0.72 per share each quarter pays out at yield of around 7.3% for a total of $2.90 per share each year. This makes CenturyLink extremely attractive to income investors who choose to reinvest these dividends for a stronger position in the stock with no additional out of pocket expense. Its stock has grown in value from $24 per share to $39 over the last three years and I believe that we can expect consistent and reliable growth over the future, making this a great investment both for the dividend and growth potential.

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Rating: 3.6/5 (14 votes)


Roke6362 - 5 years ago    Report SPAM
A company that has the overwhelming majority of equity in goodwill through acquisitions, and pays out an enormous amount of its earnings in dividends seems very suspect to me.

Where am I wrong?

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GuruFocus has detected 6 Warning Signs with CenturyLink Inc $CTL.
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