When people think about the phone company, most naturally think about AT&T (NYSE: T), the most storied company in telecom. Though A&T has its fans -- particularly dividend payers these days, with its 6.3% yield -- it can hardly be described as the best buy in telecom.
CenturyLink (NYSE: CTL), a provider of voice, broadband and video services in 33 states, is better. It beats AT&T using five criteria, including the dividend that's been the tipping point for so many AT&T investors.
CenturyLink gives investors more bang for the buck.
CTL’s earnings multiple is 10, less than AT&T, whose shares trade at 13 times earnings. CTL can be purchased for less than half the S&P 500's average valuation of 19 times earnings.
Like value? How does 'free' sound?
CTL shares trade at book value. In other words, if you sold all its assets and paid all its debts, what you would have left is the company's market capitalization. Wall Street values the company's assets but not its actual book of business. So if you spend a dollar for CTL stock, you'd get a dollar's worth of assets -- and a share of the business for free.
AT&T trades at 1.6 times its net asset value, pretty close to the S&P average.
CTL puts more cash in shareholders' pockets.
CenturyLink’s luscious 8.7% dividend yield is three times the S&P average and 2.4 percentage points higher than AT&T's hefty payout. Not only that, but CentruyLink has its dividend better covered than Ma Bell. AT&T's operating earnings were 3.3 times its 2008 dividend. CTL managed operating earnings nearly four times its '08 dividend.
High Profit Margin = High Margin of Safety
It isn't what you take in that's important, it's what you take home. CenturyLink’s 27.8% operating margin is far wider than AT&T’s 18.6%, and CenturyLink's enviable net margin of 14% exceeds AT&T's 10.3%.
A clear winner over the long term
AT&T’s shares have lost -8.6% this year while the S&P has increased +13.0%. CTL beat AT&T and the overall market with a +17.9% year-to-date return. One year of returns, of course, isn't a good way to judge any company. During the past five years, CTL’s share price has increased +2.0%, edging AT&T’s return of +0.8% and trouncing the S&P’s -7.7% loss.
Over the long haul, the difference is shocking: Since 1984, AT&T has gained +412%, behind the overall market's +510% gain. CenturyTel beat them both by a wide margin, earning +675.9% in the same period.
Five categories and five obvious wins for CenturyLink. Century may be smaller than its giant rival, but it's clearly the more worthwhile addition to your portfolio.