Frontier Communications Corp (FTR): How To Play The Dividend Cut Fear

Additionally, Frontier’s cash flows may not be as dire as a basic free cash flow calculation (see earlier FCF chart) suggests. In particular, adjusted free cash flow (and the dividend), as shown in the following chart, is much less stressed.

(For reference, Adjusted Free Cash Flow is defined as free cash flow, as described above and adding back interest expense on incremental debt and dividends paid, prior to the company’s ownership of the CTF operations, on debt incurred and preferred stock issued to finance the Verizon Acquisition).

Also worth noting, the government has a vested interest in supporting Frontier. In particular, the government wants Frontier to keep providing phone and data services in certain dispersed and underserved areas, and that’s why Frontier receives multiple government subsidies. For example, in 2015, $500 million, or 9%, of Frontier’s total revenues were derived from federal and state subsidies for rural and high-cost support, commonly referred to as USF (2015 10-K, p.22).

Frontier’s Bonds Are Better Than Its Stock

As the following table shows, Frontier currently has a variety of high yield bonds outstanding.