Small-caps might not be the first place investors look for high-yielding stocks, but right now they offer plenty of positive surprises.

Tim Cockerill, fund specialist at Rowan & Co, points out the UK Smaller Companies sector is generally growth orientated. Many firms are young and investing in their futures, with little room for profits to go to shareholders. ‘The exceptions tend to be established firms where families still have controlling stakes,’ he says.

Cockerill rates the Investec UK Smaller Companies fund for its consistent performance. Manager Philip Rodrigs agrees that smaller firms tend to offer lower yields, but notes there are anomalies, including fund management groups themselves.

Rodrigs highlights City of London Investment Group (CLIG), a specialist focusing on emerging markets. ‘The founding shareholder and CEO Barry Olliff recognises that his firm does not need much cash to grow so pays a healthy dividend,’ he says.

At the current 292.5p, CLIG offers a 6.5% dividend yield.

Rodrigs believes the ability of certain pub companies to pay dividends has gone unrewarded. Marstons and Greene King can still meet high interest payments and comfortably support dividends, while food, energy and wage cost restraints, along with the 2010 football World Cup, will boost returns. Marstons is forecast to offer 6.7% and Greene King comfortably over 5%.

Another overlooked stock offers even greater income rewards. Architect and project management group Ashley House promises a 7% to 8% yield. It has exclusive rights as part of the NHS redevelopment programme.

Rodrigs says: ‘Fears of declining activity seem overdone with a price/earnings ratio of around 6x.’