Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

February 9, 2011 - CenturyLink, Inc. (CTL-NYSE) together with its subsidiaries, operates as an integrated communications company. The company provides a range of communications services, including local and long distance voice, wholesale network access, high-speed Internet access, other data services, and video services in the continental United States.

The company also offers other related services, such as leasing, selling, installing, and maintaining customer premise telecommunications equipment and wiring; provides billing and collection services to third parties; participates in the publication of local telephone directories; and provides printing, database management, direct mail services, and cable television services.

In addition, the company provides network database services, as well as switched digital video services and wireless broadband Internet services. As of December 31, 2009, it operated approximately 7.0 million telephone access lines. The company was formerly known as CenturyTel, Inc. and changed its name to CenturyLink, Inc. in May 2010. CenturyLink, Inc. was founded in 1968 and is based in Monroe, Louisiana.

We brought CenturyTel to investors' attention back in December of 2009 when it traded at $36 a share. It's up 22% since then. When you add in the 6.5% dividend (on average), that's a gain of 28.5% in a little over a year. Not bad for a telephone company. Now the stock is almost back to its old high of $49.90 (reached in 2007). Can it still deliver exceptional returns?

It's certainly growing. The company is merging with Qwest Communications, a $13 billion plus combined entity. That should be done by the middle of the year. There doesn't appear to be any regulatory objections to it. There will be a share swap between CenturyLink and Qwest shareholders, with Qwest holders receiving .1664 shares of CTL for each Qwest share held. The new company would then have 50.5% CTL shareholders and 49.5% Qwest holders. Along with Qwest, CTL inherits $13 billion of debt, putting the full value of the merger closer to $26 billion.

It was in 2009 that CTL bought Embarq, a spin-off of Sprint Nextel. Now with the Qwest merger, expect even better efficiencies as the larger entity should produce economies of scale such as lower overhead costs. Look for more new offerings as well as CTL can now offer more mobile and cable based services and products. Because of the larger scale, CTL should be expanding its broadband availability and offer new video, data, and high-bandwidth services. Analysts think costs can go lower by $625 million annually when the merger is completed, and all departments have eliminated redundancies, especially in administration.

Earnings most likely were down a little last year, coming in at $3.42 compared to $3.60 in 2009. For 2011, they will most likely be down again. But beyond this year, when the synergies of the merger begin to show and customers are buying more services (such as cable and Internet access), expect earnings to start up again.

There's no question some customers are giving up their landlines (the majority of CTL's customers have landlines) for mobile service. But CTL is countering this loss with DSL subscriber growth, more data-based revenues from business, and cost savings from the Embarg acquisition. Competition for the cable business has been moderate so far but with satellite capabilities from providers like DISH Network, expect it to increase.

Essential numbers: Market Cap is $13.50 billion. Trailing P/E is 14.11. Forward P/E is 13.79. Price to sales ratio is 1.89. Price to book is 1.4. Book value is $31.71. Operating margin for the last 12 months was 34.26% and Profit margin was 13.33%. Return on equity was 10.03% and Return on assets was 6.78%. Total cash is $243.06 million for 80 cents a share. Total debt is $7.56 billion. Debt to equity is .79. Current ratio is .74. Operating cash flow was $2.09 billion for the last year. Beta is .72. There are 303.25 million shares outstanding with a Float of 300.81 million. Insiders own .37%. Institutions have 75.50% of the Float.

Income investors should find comfort in the strong cash flow here and solid earnings. The dividend seems relatively safe. And at 6.6%, it's well above average for all dividend paying stocks and certainly for most telcos.