HFA offers strong yield and opportunities for earnings growth

HFA Holdings is a stock which provides a strong yield and opportunities for medium term earnings growth. The company operates a hedge fund-of-funds in the USA called Lighthouse Partners which manages US$8.5bn and was formed 16 years ago. The key funds have shown a return of over 5% p/a over the past ten years, with very low volatility, which has created a loyal customer base. The medium term growth opportunities lie primarily in fund performance (which grows the overall fee base), additional investments from endowment funds and other institutions, and new products. The company recently became debt free and expects to pay out up to 90% of EBITDA in unfranked dividends. This high payout ratio places the stock on an estimated dividend yield of around 8%.