# Valuation# Fundamentals# Reference
What's a Healthy Payout Ratio? Industry-by-Industry Benchmarks
1. Why Payout Ratio Matters
Payout ratio = dividends / EPS. 100% = all profits paid out; 50% = half retained. It directly reveals dividend sustainability.
2. Industry Benchmarks
| Industry | Healthy | Warning | Reason |
|---|---|---|---|
| Tech | 10–30% | 50%+ | R&D reinvestment |
| Staples | 50–65% | 80%+ | Stable cash flow |
| Healthcare | 40–60% | 75%+ | Patent cliffs |
| Utility | 60–75% | 85%+ | Regulated |
| Telecom | 60–75% | 90%+ | Heavy capex |
| Energy | 30–50% | 70%+ | Oil volatility |
| Financial | 30–50% | 60%+ | Capital rules |
| REIT | 80–95% FFO | 100%+ FFO | 90% legal |
3. REITs Use FFO/AFFO, Not EPS
REIT payout ratios use FFO or AFFO because depreciation distorts net income. Realty Income's FFO payout is ~75–80% — healthy.
4. Why Do 100%+ Payouts Survive?
- One-off charges depress net income
- FCF is fine; GAAP earnings only look low
- Buybacks / asset sales fund capital return
Temporary fine; persistent 2+ years = high cut risk.
5. Payout Ratio Alone Isn't Enough
- Dividend coverage (FCF / dividends)
- Debt trend
- Revenue growth
- Dividend history (streak)
6. Conclusion
Don't judge by 60% alone. Understand industry structure first, then check FCF coverage within the healthy range. See our glossary on Payout Ratio for deeper data.