by Dee Gill December 26, 2013

The stock market loved Frontier Communications (FTR ) decision last week to buy AT&T’s (T ) Connecticut landlines. Hailed in part as a way to safeguard Frontier’s much-loved dividend, the share price jumped.

But before chasing after Frontier’s 8.5% dividend yield. check out the chart that should still keep Frontier shareholders reaching for the antacids.

Free cash flow pays Frontier’s dividend, because the company does not earn anywhere near enough money every quarter to pay it from earnings. Since a dividend cut last year, cash flow has easily covered dividend payments. We can see that coverage from cash flow – as well as the lack of it from earnings — in the chart below of payout ratio and the cash dividend payout ratio .

Increased earnings and cash flow from the AT&T business will make those payout ratios a little prettier. But Frontier also has a lot of debt, and it likely will issue more debt to complete this $2 billion purchase. Cash flow, in addition to funding dividends, also makes debt payments. Until Thursday’s announcements, investors had reason to believe cash flow would pay down some of Frontier’s debt next year. Company officials now say they are comfortable with the “modest increase” in leverage the purchase requires. Frontier does have a cash pile that when considered for a net debt count, gives the company more coverage. Net debt was still about three times cash flow before the acquisition.

Frontier’s underlying business – mainly landline phones and Internet hookups in homes – hardly seems equipped to resolve its cash issues. Excluding acquisitions, Frontier’s revenues and earnings are forecast to shrink this year and next.

Frontier gets a Three-Rolaids rating on the YCharts Dividend Stress-o-meter, a bogus device that uses serious fundamentals analysis to measure risk in big dividend stocks. Most stocks with large dividend yields create the need for at least a little antacid, because high yields often come from troubled or slowing businesses. One-Rolaids investments are most likely to create only a low level of stress. Two-Rolaids investments have a higher potential for causing moderate anxiety. Three-Rolaids investments, like Frontier, are most likely to create serious heartburn.

Prior installments in this series on notably big dividend yields focused on payouts at tobacco stocks. above-5% dividend yields at healthcare REITs. and on 12.5% dividend yield at Windstream (WIN) and the risks that go along with it.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.