Until now, I'd used 60% as my rule-of-thumb upper limit in evaluating dividend policies, based mostly on experience with various companies' payout policies. Turns out a payout ratio in the 40-60% range is in the 'sweet spot' for high quality companies in terms of earning market respect and even improving cost of capital!

'In today’s equity market, payout ratios have a meaningful impact on both equity valuation and the overall cost of capital. Our analysis suggests there is an optimal payout-ratio range that can lead to a higher price to- earnings multiple, especially within a high-quality subset of the market where stable operating models give most companies the flexibility to sustainably implement higher payout ratios.1 When we examine the payout ratio’s impact on the cost of equity and the cost of debt, we also find an optimal range of payout ratios that can help to minimize the cost of both equity and debt. In conclusion, we argue that many U.S. companies have the potential to optimize payout ratios to gain a fundamental competitive advantage.'

'Taking into account the implications for both valuation and the cost of capital, there appears to be an optimal payout ratio between 40% and 60% for the high-quality subset of the U.S. equity market.'
http://news.morningstar.com/articlenet/SubmissionsArticle.as...

Though the article doesn't mention it, I'd expect this finding to be non relevant for mandated payout ratio businesses like REITs/ MLPs etc.
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