Frontier Communications (FTR) has been on quite the run in just the last few months. With the stock up more than 30% in a short time frame, investors can accidentally become blind to the company's challenges. There are three specific issues facing Frontier, and they all lead to one conclusion -- the dividend isn't as safe as investors might think.

Down, down, down
In the local telecom business, many companies use words like "encouraging" or "improvement" or "transition" to describe their operations. Frontier puts on a good front and reports improvements in the company's business. However, real improvement comes in the form of revenue growth.

The following chart is the first thing investors may have missed in Froniter's recent earnings.

Source: SEC Filings

As you can see, no matter what measure you look at, Frontier is in a state of decline. What's more concerning is the company is underperforming its peers in several ways.

First, Frontier's overall revenue decline of 4.3% was worse than both Windstream Holdings (WINMQ) and AT&T (T 2.15%). Windstream reported a revenue decline of just 2%, and AT&T's wireline business showed a revenue decline of less than 1%.

If Frontier was showing a revenue decline in one segment and growth in another, that would be one thing. However, Frontier is reporting revenue declines in both its residential and business operations. By comparison, AT&T showed positive revenue growth of 4% on the consumer side, and Windstream reported business revenue was flat.

In short, Frontier can say whatever it wants, but as long as consumer and business revenue declines continue, a happy ending to the story is hard to believe.

The core of the problem
While revenue declines can sometimes be masked by cost cutting, a good measure of the strength or weakness of a company is a measure called core operating cash flow. This measure simply cuts out all of the potential distractions from the cash flow statement and focuses on just net income and depreciation.

The second thing investors might have missed in the company's earnings is that the company's core operating cash flow is hurting. On an annual basis, Frontier's core operating cash flow declined by nearly 10%. By comparison, Windstream's operating cash flow declined by 7% year over year. Of course, AT&T has a huge wireless operation to help its performance, and the company's cash flow increased slightly because of this.

The truth is, Frontier's revenue decline is contributing to a decline in operating cash flow. Like falling dominoes, these two challenges are being masked by an issue with capital expenditures.

Things aren't going to stay this way
The third thing investors might have missed in the latest earnings report is that Frontier's capital expenditures aren't going to stay this low. Since one of the main attractions to the company's stock is its high yield, investors must be certain that they understand Frontier's real cash flow.

When it comes to payout ratios, both AT&T and Windstream reported core free cash flow payout ratios of 90% or more. However, there is a huge difference between these companies and the direction of their capital expenditures. AT&T witnessed a 34% increase in capex, while Windstream reported a 30% decline.

Where Frontier is concerned, the company's capex spending dropped almost 29% compared to last year. The problem is, the company has stated that its capital expenditures will fall between $660 million-$730 million for the full year.

Taking the average of these projections, Frontier's current-quarter capex was a full 20%-35% below the company's expectations. This means the current-quarter cash flow payout of 54% isn't sustainable. In fact, the payout ratio will almost certainly jump to 64%, possibly even as much as 73%.

While these numbers aren't a huge concern, coupled with the company's continued decline in both revenue and operating cash flow, investors should be worried. Frontier's stock price has moved up in the last few months, but this could be short lived once investors realize things aren't as rosy as they seem.