What happened

Shares of Frontier Communications (NASDAQ:FTR) are on the fritz again. As of 10:45 a.m. EST, the stock had fallen 15.6% below Thursday's closing prices due to a bearish analyst note.

So what

Bank of America/Merrill Lynch analyst David Barden slashed Frontier's price target from $19 to $4 per share, citing the regional telecom's unsustainable dividend policy. Frontier's stock currently offers quarterly dividend payouts of $0.60 per share, which works out to a titanic annual yield of 34% at today's share prices. Any reduction of that generous payout would drive a lot of investors away from this apparent cash machine, and Barden argues that the payouts soon will have to slow down or stop entirely.

One hand holding three $20 bills while another sets fire to them with a lighter.

Image source: Getty Images.

Now what

Mind you, Frontier already took an ax to its dividend policy earlier this year. The company approved a 15-for-1 reverse stock split in order to stay in compliance with the NASDAQ stock exchange's listing rules, then cut its quarterly dividend by 62% to land at the payouts you see today.

So Frontier's dividend expenses dropped from roughly $175 million to $100 million per quarter, conserving cash better used to pay down some of the $17.7 billion long-term debt balance that's been weighing on Frontier's results since the $10.5 billion Florida-Texas-California deal was struck with Verizon Communications (NYSE:VZ). That contract nearly doubled Frontier's quarterly interest expenses to $381 million, and the company has been bleeding away at an alarming rate the Verizon customers it acquired.

Credit ratings firm Moodys has downgraded Frontier's corporate credit rating three times in the last 52 weeks, and the credit outlook remains negative. As the credit ratings fall deeper into speculative territory, Frontier's ability to refinance its bonds and loans fades away. This could trigger a crisis the next time a large bond tranche expires. In general, Frontier needs to forget about investor-pleasing dividends to funnel more cash into lowering its debt balances.

Fellow Fool Eric Volkman "can't imagine any scenario" where Frontier recovers from the ill-advised Verizon deal and its current financial straits. Neither can I, and Barden is singing the same tune. This stock has deserved every bit of its traumatic 86% value drop in 2017, and I think there will be more pain in the road ahead.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool has a disclosure policy.