Independent Research
June 22, 2017
Frank Mastrapasqua, Ph.D.
Principal, Chairman & Chief Investment Officer

Academic and empirical research have provided strong support regarding the investment benefits of dividend paying stocks. A major finding in a recent study by C. Mitchell Conover, CFA, CIPM, Gerald R. Jensen, CFA, and Marc W. Simpson, CFA entitled, “What Difference Do Dividends Make?” which appeared in the Financial Analyst Journal (Volume 72. Number 6), indicated that “high dividend payers have the least risk yet return 1.5% more per year than do non-dividend payers.” The study examined returns over a variety of market conditions, and a very long time span – from 1962 to 2014 – when U. S. dividend yield ranged from 1.1% to 5.6%. Additionally, dividend paying companies may well reflect a level of development and maturity in their sector that is often not apparent in non-dividend paying equities.

Three of M Capital Advisors’ four equity strategies – Equity Income, Large Cap Core, and Small-Mid Cap Core have a strong focus upondividend paying stocks. Furthermore, the firm’s balanced accounts reflect not only the dividend component, but a maturity structure for bonds which helps control risk. In addition, our Large Cap Growth strategy includes dividend paying stocks, with over 70% of its holdings being dividend-paying equities.

Our sector focus and GRAD Point ModelTM provide an even more selective framework for constructing portfolios. The sector emphasis may offer stocks that not only pay dividends, but also offer dividend growth supported by improving company fundamentals. The GRAD PointsTM establish a basis for valuation, blending the financial characteristic of the company with its growth prospects.

Controlling risk, preserving capital, and achieving attractive risk-adjusted returns over the investment cycle remains our compelling goal. In an effort to enhance our ability to reach our objective, we have further developed our proprietary liquidity index, which adds another dimension to understanding the investment cycle. Deteriorating liquidity is a forerunner of a bear market (20%+ decline) and the index focuses upon such market conditions. The algorithm used to optimize the correlation and coefficients centers on declining markets, attempting to anticipate a major market correction. An index value of 100 is optimal and can remain there for a long time as the market continues to climb, while a sharp decline in the index indicates higher risk of a correction. It is our intention to be aware of deteriorating conditions so as to improve our ability to control risk as the investment landscape shifts. The chart below places the index at 100, a constructive level.

MCA Liquidity Index vs. S&P 500







The M Capital Advisors (MCA) Liquidity Index uses nine variables that represent key areas of the economy such as the labor market, industrial activity, and interest rates. These variables have been statistically shown to influence financial markets, which are represented here by the S&P 500 – a commonly used benchmark consisting of the stocks for the 500 largest US companies.

The purpose of the MCA Liquidity Index is to track stress in the financial system. A value at or near 100 indicates healthy liquidity (the ability to conduct everyday transactions), which supports economic activity. As financial stress increases, liquidity decreases, which raises the risk of an economic slowdown. This risk can result in steep declines for financial markets (bear markets). The Liquidity Index is one of many statistical tools M Capital has developed to help make informed investment decisions.

Mastrapasqua Asset Management, Inc. does business as M Capital Advisors. If you have a question or need further information, please contact:
Patrick Snell, CFA, Principal & Portfolio Manager in Nashville at 615-244-8400, or or
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, or

© 2017 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. To our knowledge, none of the information contained in our column would, when it becomes publicly available, have an influence on the valuation of a particular stock. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.

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