We’ve said it often. A good dividend is getting harder and harder to find.

During the first two months of 2016, just 84 companies raised their dividends, compared with the 106 that did during the same time period last year.

What’s more, those companies that have increased their payouts have done so to a lesser extent. The average boost has been 10%, down from 13% in 2015 and 18% in 2014.

Companies are becoming less eager to dole out cash to shareholders in today’s uncertain economic environment.

While the lack of dividend growth is certainly something we’re paying attention to, dividend cuts and suspensions have been the bigger news. Companies operating in the commodities and industrial sectors have been the hardest hit.

It’s not just a small company problem either. ConocoPhillips’ (NYSE: COP) massive 66% dividend reduction last month proved that the larger companies are not immune to the unprecedented fall in commodities prices.

It will help us understand why we’re seeing such widespread dividend slashing if we look first on a smaller scale.

Why Do Dividend Cuts Happen?

A dividend cut is an act of last resort for a company.

When a company cuts or, worse, eliminates its dividend, it is admitting to investors that its financial position is weakening and its management does not expect that financial position to improve anytime soon.

Dividends are paid from free cash flow. When cash flow declines, the company’s payout ratio (dividends paid divided by cash brought into the business) climbs. When the payout ratio tops 100%, the company cannot self-fund the dividend anymore. It is paying out more cash in dividends than the business is generating.

In that case, in order to continue paying a dividend, management must find alternative sources of funding. For short-term blips, a company may decide to dip into cash reserves. Other times, a company may choose to cut costs and capital expenditures or issue debt to meet past dividend levels.

These are short-term solutions. If free cash flow does not improve, these actions may put the company in an even shakier position down the road.

If a company uses too much of its cash, it may not have enough money to pay off its debts. It risks going into default or even bankruptcy. Almost all companies will reduce dividend expenses long before they get to this point.

We have had several companies in the natural resources sector make this hard but necessary decision over the past year. A few of these are highlighted below, and we will see more in the near future.

Two More Oil Industry Dividends Bite the Dust

Twin Disc (Nasdaq: TWIN) suspended its dividend in February. The company builds power transmission products that manage and control the horsepower generated by internal combustion engines and electric motors. Its customers operate in the mining, oil and gas, construction, and agricultural industries.

Most of Twin Disc’s end markets have been in a freefall. As a result, the company has seen orders decline significantly. After the company reported a net loss on February 2, management was forced to make a tough decision regarding capital allocation. It was not enough to cut expenses and sell assets…

So Twin Disc suspended its dividend.

Free cash flow fell 56.76% year over year in fiscal year 2015 and is expected to drop another 41.25% in 2016. With a payout ratio north of 87%, Twin Disc’s lack of free cash flow left little wiggle room for if conditions were to worsen.

Prior to the dividend suspension, SafetyNet Pro rated Twin Disc’s dividend safety a “D.” After it, Twin Disc was removed from the SafetyNet Pro database.

Energen Corporation (NYSE: EGN) also discontinued its dividend last month. The shale oil exploration and production company’s dividend was one more victim of prolonged low oil and natural gas prices.

Energen slashed its quarterly dividend by 87% (from $0.15 to $0.02) in October 2014. But as prices continued to decline, Energen could not afford to keep up with its payment. Before Energen eliminated its dividend on February 11, its dividend safety rating was an “F.”

Energen has been removed from the SafetyNet Pro database.

Yet Another Big Oil Company Slashes Its Dividend

Anadarko Petroleum’s (NYSE: APC) dividend also fell victim to the oil glut. Last month, the company cut its dividend by more than 81% in order to preserve $450 million in cash. The company’s dividend is now $0.05 versus the $0.27 shareholders used to enjoy.

Prior to the reduction, Anadarko had a “D” rating. Its dividend safety is now rated an “F.”

It’s Earnings Season!

Earnings season is in full swing. Nearly every day, companies are reporting their quarterly and/or full-year 2015 results.

As the numbers come in, management teams and Wall Street analysts are adjusting their expectations accordingly. That is why the SafetyNet Pro database saw more than 250 rating changes in February. The good news is that upgrades slightly outnumbered downgrades – 52% to 48%.

“A to Z” Falling From “B” to “F”  

After releasing earnings in February, AstraZeneca’s (NYSE: AZN) dividend safety was downgraded from a “B” to an “F.” The reason for the demotion was free cash flow.

For 2015, the company paid out $3.5 billion in dividends, yet free cash flow was $2.1 billion, down a staggering 66.1% from the $6.2 billion it brought in during 2014.

Generic competition for several of its blockbuster drugs has contributed to the decline. AstraZeneca has yet to counter new competition with new drugs from its late-stage pipeline.

Although its free cash flow is expected to rise modestly this year (to $2.9 billion), the company is still not generating enough cash to cover its dividend obligations.

Good News for General Growth

General Growth Properties Inc. (NYSE: GGP), the mall-owning real estate investment trust, also announced its full-year earnings in February. As a result,SafetyNet Pro upgraded its dividend safety from a “C” to an “A.”

For REITs, SafetyNet Pro uses funds from operations (the term for a REIT’s cash flow) to evaluate a dividend’s sustainability. General Growth Properties’ FFO is going in the right direction: up.

In 2015, General Growth Properties realized $1.44 in FFO, up 9.1% from $1.32 in 2014. To broaden the scope, its FFO was up a whopping 180% from the $0.52 it earned in 2012.

And FFO is expected to keep rising to $1.55 this year. That is more than enough money for the REIT to cover its $0.71 per share dividend obligation in 2015 and estimated $0.77 in 2016.