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By Serkan Unal

Investors who are willing to accept higher risk in hope of realizing above-market rates of return often look into small capitalization stocks to pick their presumed winners. Particularly appealing are those small-cap stocks that are priced below their intrinsic values. Add to the combination of small-cap and value stocks the high yield of dividends paid, and the mix looks ripe for outstanding returns.

Indeed, small-cap value stocks have historically outperformed the market and their growth counterparts. If you wonder why small cap value stocks have achieved such success, here is an interview with Professor Eugene Fama from University of Chicago that sheds more light on the matter (the interview is courtesy of ClientInsights). Even though past performance does not guarantee future results, small-cap value stocks that pay dividends stand a good chance to produce high total returns over time. With this in mind, here is a closer look at five high-yielding small-cap value stocks that can represent good starting points in research for potential stock winners for the long haul.

STAG Industrial, Inc. (STAG), a Class B industrial properties REIT, has a dividend yield of 5.6% and a payout ratio of 97% of its 2012 core FFO. The company recently raised its quarterly dividend by 11.1%. Since going public in Q2 2011, this REIT has been growing aggressively through accretive acquisitions. It is considered a deep value stock, as it trades at only 15.2x its 2013 adjusted FFO, compared to a multiple of 23.4x for its peers. STAG has strong balance sheet and conservative debt strategy. Its cash flows are diversified across geographies and industry. Some of its largest tenants include International Paper (IP), Bank of America Corporation (BAC), and Spencer's Gifts. JPMorgan analysts see the company's FFO rising nearly 9.0% this year (to $1.34 per share) and another 8.2% in 2014 (to $1.45 per share). Analysts have been raising their FFO estimates upward following STAG's strong Q4 results, in which core FFO surged 43.5% year-over-year, mainly driven by robust acquisition volumes. A rebounding economic growth, in particular the rising industrial production, bodes well for this REIT. STAG is up 55% over the past year. Last quarter, J. Allan Reid's Forward Management was the hedge fund with the largest stake in STAG (see Forward Management's top picks here).

Sabra Health Care REIT, Inc. (SBRA), a healthcare REIT providing nursing, rehabilitative and related specialty healthcare services, is another undervalued, high-yielding stock. It has a dividend yield of 4.9% and a payout ratio of 77% of its 2013 FFO guidance midpoint. Sabra has achieved a 20% growth in normalized adjusted FFO per share since Q1 2011, pursuing a robust acquisition strategy. In fact, as of the end of last year, 33.5% of its total annualized revenues came from acquisitions. The REIT issued its 2013 FFO guidance above analyst estimates, projecting 2013 adjusted FFO to a range between $1.74 and $1.78 per share. The guidance represents a 10% growth from the adjusted FFO in 2012 of $1.60 per share. The REIT has strong balance sheet reflecting modest leverage and sound liquidity. In the long run, SBRA stands to benefit from the aging of the Baby Boom generation that will boost the demand for nursing services. However, Sabra operates in a highly regulated environment and is dependent on Medicare and Medicaid reimbursements. In terms of stock performance, SBRA is up 74% over the past year. The stock is currently trading at 15.8x projected 2013 adjusted FFO, based on the guidance midpoint. Its much larger peers HCP Inc. (HCP) and Health Care REIT Inc. (HCN) have forward FFO multiples at 16.5x and 17.6x, respectively.

Macquarie Infrastructure Company LLC (MIC), which owns and invests in infrastructure businesses such as airport infrastructure services (e.g. aircraft storage), bulk liquid storage terminals, gas production, and district energy, has a dividend yield of 5.4% and a payout ratio of 74% of its 2012 free cash flow. The company has a policy to distribute "substantially all" free cash flow to shareholders and has an implied dividend growth rate of 10% annually. The company has been growing its cash flow robustly, providing for higher dividends. MIC's underlying proportionately combined free cash flow rose 9.3% last year. It is expected to increase at an even more rapid pace of 13.0% this year, with a targeted 2013 underlying proportionately combined free cash flow per share in the range between $4.10 and $4.20. At the midpoint of this guidance, the stock is trading at 12.4x. The demand drivers for MIC include higher volume of jet fuel sold (with a focus on highly frequented airports), recovering economy, increasing appeal of natural gas as a preferred clean energy, and demand for reliable, cost-effective district cooling services. The stock is up 55.5% over the past year. Last quarter, Senator Investment Group's Doug Silverman held 4 million shares of MIC.

Summit Hotel Properties, Inc. (INN), a REIT and a hotel investment company, is another high-yield, small-cap value investment. The REIT has a portfolio of 91 upscale and upper midscale select service hotels with a total of 10,309 guestrooms located in 22 states. It has a dividend yield of 4.4% and a payout ratio of 52% of the company's 2013 adjusted FFO guidance midpoint. Based on its 2013 guidance midpoint for adjusted FFO per share of $0.87, INN expects to see a 6.1% increase in adjusted FFO per share this year. The high end of the adjusted FFO projection implies an almost 10% growth year-over-year. The company has been outperforming its peers on select metrics. For instance, Summit REIT's RevPAR growth in 2012 outstripped that of its peers on average by 5.7 percentage points, according to the firm. INN expects its RevPAR growth to continue at a rate of between 5% and 7% this year. It should be noted that since 2011 this REIT has been the most acquisitive lodging REIT by room count in its peer group. INN is priced at a discount to its peers, trading at 11.6x forward adjusted FFO, based on its 2013 guidance midpoint. This compares to its peer group's forward FFO multiple of 12.3x.

Oritani Financial Corp. (ORIT), a holding company for Oritani Bank that provides retail and commercial banking in New Jersey, is another high-yield, small-cap value stock. It has a dividend yield of 4.0% and a payout ratio of 74% of the current-year EPS estimate. The bank has increased its regular dividend threefold since mid-2009. The bank trades at a 40% premium to its book value and peers, on average; however, the bank's current price-to-book is 17.7% discounted relative to the stock's five-year average ratio. The bank focuses on organic growth through commercial real estate and multifamily loan originations. Thus the rebound in economic growth bodes well for the bank's performance in the coming period. The bank's loan growth in fiscal Q2 2013 period was 19.6% year-over-year, with basic EPS rising 15.8% over the same period. ORIT expects to achieve net interest income expansion this year as well, mainly through additional loan originations and prudent expense management. However, it should be noted that the bank experienced an increase in nonperforming assets in the past two quarters. With return on assets [ROA] of 1.28%, the bank leads its industry, which has an average ROA of only 0.60%.

Source: 5 High-Yield Small-Cap Value Stocks For Strong Returns