Last year, when I covered Exxon Mobil (NYSE: XOM) in Safety Net, the stock received a D rating for dividend safety.

The company’s payout ratio was an issue. It was paying more in dividends than it generated in free cash flow. Cash flow had also declined over the recent years as the price of oil plummeted.

Interesting to note, when I wrote that article last year, free cash flow was projected to be $7.4 billion for 2016 and $16.8 billion this year.

Those estimates were way off…

Exxon Mobil’s free cash flow totaled $5.9 billion in 2016. And that $16.8 billion estimate has been reduced by $10 billion to $6.6 billion for 2017.

Nevertheless, if Exxon Mobil generates $6.6 billion, that will be 12% growth over last year, which is impressive.

Despite its attractive 3.8% yield, the bad news for shareholders is that it still pays out a lot more in dividends than it collects in cash. This year, the company is projected to pay out $12.5 billion, nearly double the free cash flow estimate.

When a company doesn’t make enough money to pay its dividend, it either pays shareholders from cash on hand or borrows it.

Exxon Mobil has only $4 billion in cash. If you add that to the $6.6 billion forecast, it’s still not enough to pay the dividend.

What Exxon Mobil does have going for it is a 35-year history of raising the dividend every year.

Companies with long track records of annual dividend raises usually keep them intact by any means necessary. They know that if after 35 years they suddenly reverse course and don’t raise the dividend or – God forbid – lower it, shareholders will be livid.

It’s an important distinction between Exxon Mobil and another company that may have cash flow problems but doesn’t have an impressive dividend-raising track record.

The fact that free cash flow is expected to grow this year is positive. But we’d like to see it get to the point where it is covering the dividend and then some. Until then, even with the strong dividend-raising history, the stock cannot be rated too high for dividend safety.

Dividend Safety Rating: C