Dividend investors have flocked to rural telecom specialist Frontier Communications (NASDAQ: FTR) over the years, with the stock's high yield proving especially enticing to those looking for income. However, long-term shareholders will remember the huge downward impact on the stock from dividend cuts in 2010 and 2012, and more recently, Frontier stock has fallen by nearly 40%, giving up several years' worth of prior gains. Let's look at three of the key reasons Frontier Communications might see its stock head south in the future.

1. Frontier doesn't seem to be pursuing a conversion of part of its operations into a REIT.
Taxes are always a big expense for companies, and given its cash flow, Frontier Communications is no exception. Yet at least so far, Frontier doesn't appear to be looking at a method involving real estate investment trusts that one of its competitors has used to cut its tax bill.

Under a partial REIT conversion, Frontier would take most of its network assets and separate them out into a separate company that would qualify for favorable tax status as a real estate investment trust. The REIT rules allow that entity to avoid corporate taxation if it distributes the bulk of its income to shareholders as dividends.

One possible structure would then have the Frontier operating company lease those network assets from the REIT, guaranteeing reliable income for REIT investors while maintaining use of the existing network for Frontier. In addition to tax savings, a REIT spinoff could also help Frontier manage its debt by splitting it across the two entities, and potentially reducing the operating company's forward debt burden.

Frontier shares jumped last year when its competitor announced its REIT plan, as many investors expected Frontier to follow suit. It hasn't, and that has disappointed many shareholders, who were hoping for a faster response.

2. Frontier's churn rates could continue to move higher.
Frontier has worked hard to build up its customer base, with key acquisitions from major telecom players AT&T and Verizon serving to bring more subscribers into Frontier's doors. If Frontier can't keep those customers, though, then it's hard to justify spending billions for them in the first place.

During the first quarter of 2015, monthly customer churn rates rose to 1.78%, which was a much faster rate than the previous quarter's 1.62%, and the year-ago quarter's 1.63%. By contrast, both Verizon and AT&T have tended to have lower churn rates, reflecting greater customer loyalty.

If Frontier starts to lose all the customers it obtained in key acquisitions in recent years, then it will only add to the company's long-term concerns. In order to retain those customers, Frontier will need to explore higher-value services more closely to try to encourage subscribers -- especially the new ones it has inherited from AT&T and Verizon -- to stick around, and even consider upgrades.

3. Debt leaves Frontier vulnerable to changing credit-market conditions.
Telecoms are notorious for high debt levels, and Frontier already had a huge amount of debt on its balance sheet. Yet, as if the $9.66 billion in debt as of March 31 weren't bad enough, Frontier expects to finance as much as almost $8 billion through bond issuance and leveraged loans to help finance its $10.5 billion purchase of wireline assets from Verizon. The result will be a lot more leverage for the company, making it all the more important for Frontier to make the most of its newest customers.

Even if the transition goes smoothly, though, Frontier will still have to deal with potential fallout from rising rates. Right now is actually just about the perfect time for Frontier to consider a deal, with low rates making it possible to lock in cheap financing. Yet the sheer amount of debt involved raises the likelihood that Frontier won't be able to pay all of it off when it comes due, and if rates have risen in the interim -- which nearly everyone expects will be the case -- then Frontier could find itself using much more of its cash flow on interest expense, and leave much less leftover for dividend payments.

Frontier Communications has many people expecting a turnaround, thanks to some positive recent news. Yet there are several reasons to think that Frontier hasn't yet hit bottom. If these reasons become reality, then Frontier could have further downside ahead.

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Dan Caplinger owns shares of Apple. 

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