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Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. Are you looking for small-caps? Interested in earning dividend income? Looking for ways to dig deeper into a company's profitability? Do you prefer stocks that analysts rate as 'Buy', or better? You might like what we've put in our list.

Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

We first looked for small cap stocks that have a high dividend yield (Div. Yield > 5%). Next, we then screened for businesses that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(Net Margin [TTM]>10%). We next screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We did not screen out any sectors.

Do you think these small-cap stocks will continue to see such strong profitability? Use our list to help with your own analysis.

1) Mesabi Trust (MSB)

Sector:Financial
Industry:Diversified Investments
Market Cap:$322.75M
Beta:1.77

Mesabi Trust has a Dividend Yield of 10.35% and Payout Ratio of 99.87% and Return on Equity of 3291.93% and Net Margin of 97.30% and Analysts' Rating of 2.00. The short interest was 4.51% as of 05/27/2012. Mesabi Trust operates as a royalty trust in the United States. The company produces iron ore pellets. It holds interests the Peter Mitchell mine located at the eastern end of the Mesabi Iron Range, near Babbitt, Minnesota.

2) Legacy Reserves Lp (LGCY)

Sector:Basic Materials
Industry:Oil & Gas Drilling & Exploration
Market Cap:$1.26B
Beta:1.04

Legacy Reserves Lp has a Dividend Yield of 8.44% and Payout Ratio of 69.41% and Return on Equity of 35.93% and Net Margin of 39.19% and Analysts' Rating of 1.70. The short interest was 0.24% as of 05/27/2012. Legacy Reserves LP, an independent oil and natural gas limited partnership, engages in the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, Mid-Continent, and Rocky Mountain regions of the United States. As of December 31, 2010, it owned interests in producing oil and natural gas properties in 370 fields in the Permian Basin, Texas Panhandle, Wyoming, Oklahoma, and several other states; operated 2,132 gross productive wells; and owned non-operated interests in 3,227 gross productive wells, as well as had proved reserves of approximately 52.8 million barrels of crude oil equivalent.

3) Newcastle Investment Corp. (NCT)

Sector:Financial
Industry:REIT - Diversified
Market Cap:$829.52M
Beta:3.41

Newcastle Investment Corp. has a Dividend Yield of 11.98% and Payout Ratio of 32.29% and Return on Equity of 157.29% and Net Margin of 75.42% and Analysts' Rating of 1.60. The short interest was 3.14% as of 05/27/2012. Newcastle Investment Corp. operates as a real estate investment and finance company that invests in and manages a portfolio consisting primarily of real estate securities. The company's portfolio of real estate securities includes commercial mortgage backed securities, senior unsecured debt issued by property REITs, real estate related asset backed securities, and agency residential mortgage backed securities. Newcastle also owns interest in loans and pools of loans, including real estate related loans, commercial mortgage loans, residential mortgage loans, and manufactured housing loans.

*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.

Source: 3 High Yielding Small Caps With Strong Earnings And Analyst Love