Will Frontier Communications (Nasdaq: FTR) upcoming earnings statement lay an egg, or will it produce some hope for investors in this rural telecom? Analysts estimate that earnings per share will come in at $0.06. The last two quarters produced an EPS number coming in below estimates, according to Bloomberg Businessweek.

Check out the chart below to see why the many loyal investors who have relied on Frontier's high-flying dividend yield will be paying close attention to the release.


Source: YCharts.

Is the dividend sustainable?
The first nine months of 2011 produced a free cash flow of $573.4 million. The dividend payout during that period was $559.8 million, making the free-cash-flow-to-dividend-payout ratio a razor thin 97.6%. The first nine months of 2010 produced a much-more-reasonable payout ratio of a 62%. With revenues for the quarter expected to drop 6.6% from the same quarter last year -- and last quarter's revenue decline was 8% over the previous year's equivalent time frame -- it's hard to see how Frontier will be able to continue with a dividend yielding over 18%.

Why the revenue fell
Frontier tripled its subscriber base when it bought a bunch of cast-off rural phone lines from Verizon (NYSE: VZ) for $8.5 billion in 2010. Much of that 8% revenue decline in the third quarter was caused by customer attrition from those former Verizon properties. Even worse, net income fell 33% during that quarter in spite of Frontier cutting back operating expenses by 3.5%.

Frontier has not helped itself in the customer relations department. During the year, it raised FiOS (part of its Verizon purchase) prices by 46% in Indiana, almost forcing customers to change to Comcast which was offering much cheaper prices. It also jacked up FiOS installation prices in Oregon from $79 to $500, forced DSL customers to rent their modems, and was sued for allegedly collecting illegal fees.

Frontier's strategy may have been to push its customers to maintain more-expensive FiOS service to satellite services provided by DirecTV and DISH Network (Nasdaq: DISH), companies which Frontier has associations with.

We'll have to wait and see from the earnings statement whether Frontiers three-year wireless reselling agreement with AT&T (NYSE: T) has provided a needed revenues lift. Rival carrier CenturyLink (Nasdaq: CTL) signed a similar agreement with Verizon.

Lucky charms, anyone?
There will be a lot of crossed fingers as investors wait for Frontier's earnings secrets to be revealed. I'm afraid a rabbit's foot, four-leaf clover, and an eye of newt would not be unreasonable items to have on hand as one waits.

Frontier offers one of the highest yields around, which offered some solace for the tumble in price it took this year. But if trading away some dividend yield for less volatility is more in line with your investing style, then check out this report from Motley Fool analysts: "Secure Your Future With 11 Rock-Solid Dividend Stocks." It's free!

Fool contributor Dan Radovsky owns shares of AT&T and Frontier. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.