CenturyLink: Why This Dividend Stock Is A Buy

May.23.12 | About: CenturyLink, Inc. (CTL)

CenturyLink (NYSE:CTL) is just one of those companies that you really don't know what to make of. On the one hand, you can't really discount the potential of this company as compared to some of its main competition because of the growth and ability to gain a bigger market share with its services in the future. But on the other hand, news reports say that it's underperforming earnings-wise. However, there needs to be a caveat on that. Why? Well, let's examine the reasons for the underperformance, mainly that it has improved its service and its operating costs have reduced its capital a bit.

In light of that, you can probably lend a bit more credence to the report that it is currently performing better than what the market experts believe it should be doing right about now. However, take all of these reports with a grain of salt, a particularly huge one at that because of the fact that CenturyLink still is not the "alpha dog" of the market. Nope, that position either belongs to Verizon (NYSE:VZ) or AT&T (NYSE:T) depending on who you ask.

Speaking of either company, expect them to be a bit tied up as they are in a current battle for command of shared-data plans. This can be good or bad for CenturyLink, as whoever wins will most likely gain a bit more dominance in the market share. This particular data market is important because it gives more customers pleasure because of the fact that they will be able to share data between their different devices. Which is the end result that each company wants: to keep their customers happy.

Verizon needs this more than AT&T because of the fact that it is cutting its previous unlimited data plans, which might just get a whole lot of customers angry. The subscribers that once had the ability to surf unlimited and download on their plans now have to pay a lot more and there should be some concern for how it will handle customers that are not pleased with the change.

However, these are not the only companies that CenturyLink has to worry about really. You also have Comcast (NASDAQ:CMCSA) to watch out for. And, if its plan to allow users to make Skype calls over its TV is any indication, then Comcast is not going to give up its position in the data transmission business anytime soon.

Then there is Time Warner Cable (NYSE:TWC). It has just settled a big case with Viacom (NASDAQ:VIAB) that allows the TWC app over the iPad to now show the Viacom shows like "Jersey Shore" and "South Park," which just means that it should be getting more people interested in the application and might mean more earnings for the company moving forward.

Of course, this is not all bad news. CenturyLink still has a few things going for it. For example, it has just reshuffled its executives, with three new incoming senior officers and two outgoing ones, all with sparkling performance records. This shows the company's drive to improve and its commitment to making things work.

If that is not enough to convince you of CenturyLink's growth, then maybe the news that it has helped a client in the armed forces win an innovation award for the mass proliferation of Wi-Fi across the different U.S. bases. This is good news for the company as it can run with the good publicity and name recognition as the plan moves on.

Of course, all CenturyLink owners should be very pleased with the performance of its subsidiary, Savvis. This particular company that it obtained about a year ago is giving it big dividends in the market. It was recently announced that FXall renewed its commitment with Savvis and will take on more infrastructure to help its clients and its own market growth.

FXall is not the only company that has selected Savvis for its services. Cognizant, one of the leaders in providing information technology, decided to make use of Savvis' cloud services to expand its solutions for their customers. This is particularly big considering the size of Cognizant and the recognition that it should want Savvis' service. It bodes well for the subsidiary in the future.

However, you know what they say: Good things come in threes. Savvis obtained a triple whammy for CenturyLink with its joint venture with Digital Reality Trust, Inc., to obtain a massive 165,000 square foot property, which will be used to house data services. This will place Savvis in prime position to obtain enough infrastructures to provide better services for its clients for the next few years or so, which puts CenturyLink in a prime position as well.

Right now, counter intuitively, staying small might be a good strategy to pursue for CenturyLink, especially when it gets an award for its very good customer service. When you stay small, you can usually satisfy your customers more consistently. Verizon, AT&T and other big fish out there have a whole lot of profits, but they often find themselves too big to really assists a single customer. This is the key point for CenturyLink. It might be the third or the fourth biggest provider out there and it might just be better off staying there.

How does that affect the stockholder's decision making? Well, it is a nice stock to hold if anything, because the improvement hedges you against overall volatility, but it is not a hard buy or a hard sell either way. If you can obtain it for a fair price or sell it for an attractive bid, do so, but don't overextend yourself trying to get it. It's a pretty good company to have and the prospects are good, but it is not going to be shooting through the roof to fill your pocketbook anytime soon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.