Frontier Communications (NYSE: FTR) is an income investor's dream come true, offering a yield of nearly 11% at today's prices. But share prices have been slashed in half over the last 52 weeks, and that discount obviously plays a large part in Frontier's stellar dividend yields.

The telecom firm reports second-quarter earnings after Tuesday's closing bell. Will this report repair Frontier's flagging stock chart or send share prices even further south?

Word on the Street
Your average Frontier analyst expects about $0.06 of earnings per share on $1.25 billion in total sales. It's worth noting that the revenue forecast comes in a brutally narrow range -- the gap between the highest and lowest available forecasts is only $300,000 wide.

Nomura Securities keyed off the first-quarter report to explain its "buy" rating on the stock. "Trading at a discounted multiple and near-record high short interest, there is little optimism in FTR shares," said analyst Mike McCormack. In particular, he likes the slowing loss of line customers in its West Virginia territory that was acquired from Verizon (NYSE: VZ) back in 2010. Extending those customer retention tactics to other, more recently added geographies could give Frontier's shares a serious catalyst over the next few quarters. McCormack's $5 target price on Frontier leaves room for a 35% climb from today's prices.

How to grow in a mature market
The crucial retention strategy includes a heavy focus on broadband service lines. Moving acquired subscribers to Frontier's own systems is another key driver of financial performance as it helps the company "manage, serve and sell" its services more efficiently. "Being on the same playbook companywide is a critical step forward for the company operationally and financially," says COO Dan McCarthy.

You might think that Frontier's focus on wired connectivity would exclude the company from the mobile markets, but that's not entirely true. The company provides backhaul connections to many a wireless tower, and that segment saw 16% year-over-year growth in the last quarter. When AT&T (NYSE: T) and Verizon need to serve up high-speed 4G wireless networks in rural areas, Frontier is one of the companies providing nerve endings linked up to the Internet backbone. Look for the growth story to continue in this important market.

But what about the dividend?
So Frontier has some levers and pulleys available to boost its business for the rest of 2012. But it's not all rainbows and unicorns. A year ago, Frontier paid out 81.6% of its trailing free cash as dividends. Heading into this report, the payout ratio stands at a much scarier 109.7%.

Management did explain that unseasonably warm weather in the first quarter inspired more infrastructure work than normal winters, moving some capital expenses back by several months in the calendar, so the dividend ratio is artificially high right now. But keep a close eye on cash flows and capital costs, because Frontier runs awfully close to paying out more than it can really afford.

The Foolish bottom line
Fellow Fool Dan Radovsky sees potential for a terrific turnaround in Frontier -- but only if the company can straighten out a boatload of questions about its operating model.

Brian Stoffel goes even further down the bearish scale as he lumps Frontier's high payout ratios and lack of dividend growth together with high-risk underperformers Roundy's (Nasdaq: RNDY) and Enerplus Resources (NYSE: ERF). Brian thinks that Roundy's is a dividend trap whose local domination has become a liability, while Enerplus and Frontier wave far too many cash-related warning flags for his cash-hunting blood.

I must agree with my colleagues that Frontier stands at a risky crossroads right now. I don't expect the second quarter to answer all these burning questions, but we'll at least get a handle on how management plans to stretch its capital expense dollar in the back half of 2012. Once we know that, some of the puzzle pieces should start falling into place -- or entirely off the table.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.