Frontier Communications Corp (FTR), CenturyLink, Inc. (CTL), Windstream Corporation (WIN): Is This Company the Next in Line?

When a company uses more than 60% of their operating income just to meet debt expenses, there isn’t going to be much left over for dividends, capital expenditures, and share repurchases. By comparison, CenturyLink, Inc. (NYSE:CTL) uses about 45% of their operating income on interest expense, and Verizon uses just 8% of their operating income.

Another issue is, the company’s lower cash flow and high interest expense makes meeting their already lowered dividend more challenging. Frontier’s dividend payout ratio dropped to less than 50% after their dividend cut. In the last quarter, Frontier used nearly 70% of its core free cash flow (net income + depreciation – capital expenditures) on the dividend. By comparison, only Windstream Corporation (NASDAQ:WIN) performed worse with a payout ratio above 100%. CenturyLink, Inc. (NYSE:CTL) and Verizon did better with payout ratios of 47.32% and 27.52% respectively.

The bottom line is, Frontier investors should feel like it’s 2012. The company’s payout ratio has climbed back to where it was before the last dividend cut, and they are paying out a significant amount of income in interest expense. I wish the news were better, but this near 9% yield isn’t safe and could be next in line for a dividend cut.

The article Is This Company the Next in Line? originally appeared on Fool.com and is written by Chad Henage.

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

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