These dividends might be in for some serious cuts. Photo: Simon Cunningham, via Flickr.

Investing in dividend stocks is the most direct path to actually profiting from a company’s business. Unlike non-dividend payers—where you just have to watch your shares go up and down from day to day—these stocks offer regular payouts that help make stock ownership so enticing.

Sometimes, a stock’s dividend yield is so high, it seems too good to be true. In the case of mid-sized telecoms Windstream (WINMQ) and Frontier (FTR), as well as printing specialist Quad/Graphics (QUAD -0.74%), that’s the reality: they are too good to be true.

Though they all offer dividend yields of over 7%, I believe all three of these companies could reduce their payouts in the coming quarters.

A quick primer on dividends
I believe there are two key facets to evaluate when trying to determine the strength of a payout. The first is the amount of free cash flow (FCF) that is used to pay the dividend. It is from FCF that dividends are paid, and if this ratio inches too high, the dividend is likely unsustainable.

The second facet is the overall business momentum of the company in question. Even if a company has a solid payout ratio, that will only last for so long if it is in a dying industry. Having said that, here’s why I think these three could fall.

Windstream
Windstream is a regional telecom company that got a significant boost over the past year when it decided to spin-off its networking assets into a completely separate company: Communication Sales & Leasing. That move helped lighten the company’s debt load, and will continue to do so as Windstream keeps selling off its remaining stake.

But at its core, Windstream is a rural provider of voice, video and broadband coverage. Not surprisingly, this isn’t exactly a lucrative business. It also doesn’t help that almost half of Windstream’s assets are classified as either Goodwill or Intangible Assets—in other words, they don’t really represent money in the bank.

Throughout 2015, the number of households served by Windstream fell 5%--following a 6% dip the year before. The other revenue stream—from small businesses—also fell, by 8% in 2015, preceded by an 8% dip in 2014 .

Obviously, you can tell that I’m not so hot on the direction Windstream is headed, but the dividend isn’t much to get excited about either. In both 2013 and 2014, over 80% of FCF was used on its payout. While the 2015 numbers are abnormal (there was negative FCF), that’s largely due to the spin-off. Put all the pieces together, and I wouldn’t be surprised to see a cut sometime soon.

Frontier Communications
Like Windstream, Frontier has suffered from a focus on rural customers while the country’s bigger players take over huge swaths of telecom’s market share. Unlike Windstream, Frontier has taken a different approach to the challenge. Instead of spinning off its assets, it has acquired assets to become a more mainstream player.

Over the past two years, Frontier has purchased the voice, video, and broadband properties of both AT&T and Verizon. In the former’s case, Frontier bought rights to AT&T’s customers in Connecticut—and that didn’t go so well. The Verizon deal recently closed, and Frontier bought the rights to the FiOS customers in California, Texas and Florida. It’s too early to tell how that will play out.

But regardless of the business momentum—which I believe is already negative—Frontier is also using a lot of FCF to pay out its dividend. In 2015, the company brought in $438 million in FCF, but paid out $576 in dividends. While the acquisitions play a part in this, and management believes no dividend cuts are in the future, if Frontier falters at all, it will have no choice but to cut its payout.

Quad/Graphics
As a native Wisconsinite, it pains me to say it, but this Cheesehead-based company has seen better days. Quad/Graphics made a name for itself by being the printer of choice for some of the nation’s most popular magazines. As you might’ve guessed, in the age of digitalization, Quad/Graphics has faced some serious challenges.

While the company only used 29% of its FCF to pay its dividends in 2015—which means its pretty safe for the near future—that could be masking a long-term decline for the company. Management announced over $100 million in cuts and the closure of four plants in late 2015 amid, “increased pricing and volume pressure.” Management believes that FCF will come in at a mid-point of $210 million in 2016, representing a slight decline from 2015.

But as I said, it is the long-term trajectory of the business that matters. While Quad/Graphics has been doing an admirable job of trying to diversify its revenue streams, some think that the writing is on the wall. Earnings per share have fallen 70% from just two years ago, and revenue is expected to decline from $4.7 billion in 2015, to $4.3 billion in 2017.

Cuts and “efficiency improvements” can only last so long before more serious changes might need to be made.