Valuation benchmark · 20 industry sectors
Earnings Yield by Industry: 2026 Sector Benchmarks
Earnings yield — earnings per share divided by share price, the inverse of the P/E ratio — answers a single question: what annual return am I earning per dollar invested, based on earnings? It ranges from 2.4% in Software to 9% in Banking. This table shows the median, top-quartile, and bottom-quartile earnings yield for each of 20 industry sectors, benchmarked against the ~4.5% 10-year Treasury — the Fed Model test for which sectors look cheap relative to the risk-free rate.
2026 data · 20 industry sectors
Earnings Yield Benchmarks by Sector
| Sector | Median Earnings Yield | Top Quartile | Bottom Quartile | vs. Treasury | Note |
|---|---|---|---|---|---|
| Technology | 3.2% | 5% | 1.5% | Below | Asset-light platforms trade at 25-35x earnings; earnings yield is compressed because the market prices in durable growth. Only mature or value-oriented tech names approach 5%. |
| Software (SaaS) | 2.4% | 4.5% | 1% | Below | High-growth subscription businesses reinvest into sales and R&D, compressing near-term earnings. The earnings yield is low not because earnings are absent but because the market pays for future growth. |
| Healthcare | 4.8% | 7% | 2.5% | Above | Branded pharma and medical devices carry predictable pricing power that earns mid-single-digit earnings yields. Biotech and hospital operators are more dispersed. |
| Communication Services | 5% | 7.5% | 2.5% | Above | Digital advertising and gaming platforms trade near the market median; legacy telecom carriers with mature, capital-heavy networks carry higher earnings yields. |
| Consumer Staples | 4.4% | 6.5% | 2.5% | Below | Premium branded goods (P&G, Coca-Cola) are priced for their defensive, predictable earnings, compressing yields to 3-5%. Private-label and commodity food processors trade higher. |
| Consumer Discretionary | 5.5% | 9% | 2% | Above | Wide dispersion: luxury and asset-light brands are priced richly (low yield) while auto OEMs, apparel, and big-box retailers carry higher cyclical earnings yields. |
| Financials | 7% | 12% | 3.5% | Above | Exchanges and asset managers carry lower yields from growth premiums. Banks and insurers trade at higher earnings yields that reflect credit-cycle risk and capital requirements. |
| Real Estate (REITs) | 5.5% | 9% | 3% | Above | REIT earnings yields use AFFO-based estimates rather than GAAP earnings — GAAP net income is suppressed by non-cash depreciation. Industrial and data-center REITs carry lower yields; retail and hotel REITs carry higher ones. |
| Utilities | 5.3% | 8% | 3% | Above | Regulated utilities offer bond-like earnings streams; yields often trade near or slightly above the 10-year Treasury rate. Rate-sensitive: when Treasury yields rise, utility earnings yields must rise too (prices fall). |
| Industrials | 5.5% | 8% | 2.5% | Above | Aerospace, defense primes, and precision instruments trade at lower earnings yields for their visibility and pricing power. Freight, construction, and cyclical machinery trade higher. |
| Materials | 6.5% | 10% | 3.5% | Above | Specialty chemicals and low-cost miners trade closer to the market median; bulk commodity and steel producers carry high earnings yields that reflect cyclical earnings swings. |
| Energy | 8.5% | 15% | 4% | Above | Energy consistently carries among the highest earnings yields because investors discount the cyclicality. Low-cost producers (Saudi Aramco equivalents, Permian E&Ps) trade with tighter yields when oil is elevated. |
| Retail | 7.5% | 12% | 3.5% | Above | High-volume, thin-margin retailers (grocery, discount) trade at high earnings yields because of low growth expectations. E-commerce and specialty formats with pricing power carry lower yields. |
| Food and Beverage | 4.8% | 7% | 2.5% | Above | Branded food and beverage companies with pricing power (Pepsi, Nestle) are priced defensively; commodity-oriented processors trade with higher earnings yields. |
| Pharmaceuticals | 4.5% | 8% | 2% | Above | Large-cap integrated pharma with diversified pipelines trade at mid-single-digit yields; patent-cliff risk drives higher yields for companies with concentrated revenue. |
| Aerospace and Defense | 4.5% | 7% | 2.5% | Above | Defense primes have high revenue visibility from multi-year government contracts, which compresses earnings yields. Commercial aerospace carries more cyclicality and trades at slightly higher yields. |
| Automotive | 8.5% | 14% | 3% | Above | Legacy OEMs carry high earnings yields because the market prices in structural disruption risk from EVs and changing mobility patterns. EV-native companies often have negative earnings and are excluded from this calculation. |
| Banking | 9% | 14% | 4.5% | Above | Commercial banks trade at the highest earnings yields in the financial sector, reflecting credit-cycle risk, regulatory capital requirements, and the cyclicality of net interest margins. Community banks trade at higher yields than money-center banks. |
| Insurance | 7.5% | 11% | 3.5% | Above | P&C and life insurers carry mid-to-high earnings yields because of reserve uncertainty and catastrophic loss risk. Specialty and reinsurance companies at the higher end of the range reflect more volatile earnings. |
| Mining | 7% | 12% | 3% | Above | Precious metals miners trade at lower earnings yields during bull cycles (gold elevated); base-metal miners and coal producers carry higher yields reflecting commodity price swings and capital intensity. |
How to Use Earnings Yield Sector Benchmarks
Earnings yield is simply the P/E ratio flipped over: instead of asking "how many dollars am I paying per dollar of earnings," it asks "how many cents of earnings am I buying per dollar invested." A 20x P/E is a 5% earnings yield; a 10x P/E is a 10% earnings yield. Framing valuation as a yield lets you compare a stock directly to bonds — which is exactly what the Fed Model does. It pairs naturally with the multiple view in our P/E ratio calculator, the sector multiples in our P/E ratio by industry benchmarks, and the intrinsic-value view in our DCF calculator.
Step 1: Find the right sector row. Earnings yields vary by more than 6 percentage points across sectors. A 5% earnings yield is generous for a software company but unremarkable for a bank. Benchmarking out of sector produces false signals. Identify the industry for the company you are analyzing, then compare to the median and quartile range in the table above.
Step 2: Apply the Fed Model test. Compare the earnings yield to the ~4.5% 10-year Treasury yield. Sectors whose median earnings yield sits above the risk-free rate — Energy, Banking, Automotive, Materials, Retail — are offering an earnings return above what a Treasury bond pays. Sectors below it — Software, Technology — are being priced for growth the current earnings do not yet reflect. This is a screen, not a verdict.
Step 3: Read a high yield carefully. A high earnings yield relative to the sector median can mean undervaluation — or it can mean the market is demanding a discount for cyclical earnings, structural disruption, or unreliable reported profits. Automotive and Banking sit high precisely because investors price in disruption and credit-cycle risk. Do not assume a high yield is a bargain until you understand why the market is discounting it.
Step 4: Pair yield with quality. Earnings yield tells you the price; it says nothing about the durability of the earnings behind it. Cross-check against return on invested capital and balance-sheet strength. The goal is a high earnings yield backed by durable, high-quality earnings — not a high yield that reflects earnings about to deteriorate.
What Drives Each Sector's Earnings Yield
Banking & Automotive (8.5–9% median)
The highest earnings yields on the board. Banks trade at 8-14x earnings because investors price in credit-cycle risk, regulatory capital requirements, and the cyclicality of net interest margins. Legacy auto OEMs carry high yields because the market discounts structural disruption from the EV transition. High yield here is compensation for risk, not a free lunch.
Energy & Materials (6.5–8.5% median)
Commodity-linked sectors consistently trade at high earnings yields because investors discount the cyclicality — peak-cycle earnings will not last, so the market refuses to capitalize them at a high multiple. Low-cost producers command tighter yields when commodity prices are elevated; high-cost and bulk producers carry the widest yields.
Financials & Insurance (7–7.5% median)
P&C and life insurers carry mid-to-high yields because of reserve uncertainty and catastrophic loss risk. Within Financials, exchanges and asset managers earn growth premiums (lower yields), while banks and insurers trade at higher yields that reflect balance-sheet risk and the potential for sudden earnings deterioration.
Utilities & REITs (5.3–5.5% median)
Regulated utilities offer bond-like earnings streams and trade near or slightly above the 10-year Treasury — and are rate-sensitive: when Treasury yields rise, utility yields must rise too (prices fall). REIT yields use AFFO-based estimates because GAAP net income is suppressed by non-cash depreciation.
Healthcare & Staples (4.4–4.8% median)
Branded pharma, medical devices, and premium consumer staples are priced for their defensive, predictable earnings, compressing yields to the mid-single digits — near the Treasury rate. Pricing power and earnings visibility let the market pay up, lowering the earnings yield relative to more cyclical sectors.
Software & Technology (2.4–3.2% median)
The lowest earnings yields — well below the Treasury rate. Asset-light platforms and high-growth SaaS businesses trade at 25-35x earnings because the market prices in durable future growth. The low yield does not mean earnings are absent; it means investors are paying today for earnings expected to compound for years.
Common Earnings Yield Analysis Mistakes
Mistake: Cross-sector comparison
Comparing Banking's 9% earnings yield to Software's 2.4% and concluding banks are "cheaper" is a category error. The gap reflects entirely different growth expectations, earnings quality, and risk. Earnings yield benchmarking only produces valid signals within the same sector against peers facing the same growth and risk dynamics.
Mistake: Treating a high yield as a buy signal
A high earnings yield relative to the sector median is the market demanding a discount for a reason — cyclical earnings, structural disruption, or unreliable reported profits. Auto OEMs and banks sit high precisely because of those risks. Always understand why the yield is high before treating it as undervaluation.
Mistake: Using GAAP earnings for REITs
A REIT's GAAP earnings yield looks artificially low because non-cash depreciation suppresses net income. The economically meaningful figure uses AFFO (adjusted funds from operations), not GAAP net income. Applying a raw GAAP earnings yield to a REIT understates its true earnings power and produces a misleading comparison.
Mistake: Ignoring the interest-rate backdrop
The Fed Model threshold moves with the 10-year Treasury. A 5% earnings yield looks generous against a 2% risk-free rate but merely adequate against a 4.5% rate. Anchoring to a fixed "good" earnings yield without checking the prevailing Treasury yield produces false signals — the risk-free rate is the moving benchmark.
Related Tools & Benchmarks
Earnings yield is the inverse of the P/E ratio, so it lives alongside the multiple-based valuation tools. Read it together with:
- P/E ratio calculator — earnings yield is exactly 1 ÷ P/E; compute a company's multiple and flip it.
- P/E ratio by industry benchmarks — the same sector story told in multiples instead of yields.
- DCF calculator — the intrinsic-value view that a high earnings yield should be cross-checked against.
Common questions
Earnings Yield by Industry — answered directly.
What is a good earnings yield by industry?
A good earnings yield depends on the sector and the prevailing interest rate environment. As a first screen, any earnings yield above the 10-year Treasury yield — currently about 4.5% — passes the basic Fed Model test, because the stock is offering an earnings return above the risk-free rate. But the right comparison is always the sector median. Software (2.4%) and Technology (3.2%) trade below Treasuries because the market prices in durable growth, while Energy (8.5%), Automotive (8.5%), and Banking (9%) trade well above because investors discount cyclicality and disruption risk. Benchmark a company against its sector median first, then against the risk-free rate.
What is the difference between earnings yield and dividend yield?
Earnings yield is total earnings per dollar invested — earnings per share divided by share price, or equivalently the inverse of the P/E ratio. Dividend yield measures only the portion of earnings actually paid out to shareholders as dividends. A company with an 8% earnings yield and a 2% dividend yield retains the other 6% for reinvestment, buybacks, or debt reduction. Earnings yield captures the full economic return the business generates; dividend yield captures only the cash returned directly. Growth companies often have a meaningful earnings yield but little or no dividend yield because they reinvest everything.
How do I use the Fed Model to evaluate sectors?
The Fed Model compares the market's earnings yield to the 10-year Treasury yield. When the earnings yield is above the Treasury yield, equities offer a premium over the risk-free rate; when it is below, bonds look relatively more attractive. Applied by sector in 2026: Energy (8.5%), Banking (9%), and Automotive (8.5%) all clear the ~4.5% Treasury threshold with room to spare, while Software (2.4%) and Technology (3.2%) sit below it — reflecting the growth premium the market assigns to those sectors. The Fed Model is a starting screen, not a verdict: a low earnings yield in a fast-growing sector can still be justified, and a high yield can signal cyclical or structural risk.
Why do financial stocks have such high earnings yields?
Banks and insurers typically trade at 8-14x earnings, which corresponds to earnings yields of roughly 7-12% — among the highest of any sector. The market assigns them low multiples (and therefore high earnings yields) because investors price in credit-cycle risk, regulatory capital constraints, and the potential for sudden earnings deterioration in a recession. Reported earnings can also be harder to trust for financials because of reserve assumptions and mark-to-market swings. The high earnings yield is compensation for that risk and complexity, not a straightforward signal that financials are cheap.
Is a high earnings yield always a value signal?
No. A high earnings yield relative to the sector median can signal undervaluation, but it can just as easily reflect real risk: poor earnings quality, cyclical earnings that are about to fall, structural disruption (as with legacy auto OEMs facing the EV transition), or financial complexity that makes reported earnings unreliable. A high earnings yield is the market demanding a bigger discount for a reason. Always pair earnings yield with return on invested capital and balance-sheet strength before concluding a stock is cheap — the goal is a high yield backed by durable earnings, not a high yield masking deteriorating fundamentals.
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