Dividends are an often overlooked but crucial part of a successful retirement strategy. These quarterly offerings can provide a regular “paycheck” for retirees — especially when the company is a high-yielding blue chip with a track record of boosting its dividend year after year.

But dividends don’t just have to be a quiet way to grow your nest egg. They can really supercharge your returns when you buy into a great stock that also happens to be cash-rich. On top of the appreciation you see in your shares, you’ll also get a great bonus checked mailed four times a year — or more, depending on the dividend schedule!

Here are 10 examples of high-yielding dividend stocks with breakout potential. All of these companies have a yield of 10% or more (OK, well one is rounded up from its 9.6% yield… but you get the idea) and are small cap stocks that seem to be going strong right now:

10. Legacy Reserves (LGCY)

Dividend Yield: 9.6%

Market Cap: $785 million

Legacy Reserves (LGCY) is an independent oil and natural gas limited partnership. The company develops oil and natural gas properties in the western U.S., primarily in the Permian Basin and Rocky Mountain regions. With oil prices up about 75% in the last year, this energy company has had a steady flow of revenue to maintain its strong dividend. As demand for energy picks up, it’s reasonable to expect LGCY to maintain or even boost this dividend in the coming months.

9. Pennantpark (PNNT)

Dividend Yield: 10.1%

Market Cap: $270 million

Business development company PennantPark Investment Corp. (PNNT) is a leading provider of “mezzanine” financing and has a dividend yield of more than 10%. Mezzanine capital is unsecured, and since it is often used by smaller companies and may involve greater overall leverage levels than issuers itcan come with high risk. However the returns on these types of loans are very substantial — and now that the worst of the economic downturn is behind us, PNNT stands to do brisk business. The company has a great 10% yield right now and a profitable business, so there’s no reason to expect dividends to be reduced anytime soon.

8. Main Street Capital (MAIN)

Dividend Yield: 10.1%

Market Cap: $181 million

Main Street Capital (MAIN) is a business development company specializing in equity and debt investments in small and middle-market companies. With economic conditions improving and small companies looking to enter growth mode instead of just staying on the defensive, Main Street could see some brisk business in 2010. The company pays a monthly dividend instead of a quarterly payout, meaning a steady flow of cash for income investors. Though the smaller payments may not drop your jaw, over the course of a full year the dividend yield of this stock is above 10% so these monthly payouts from MAIN can add up in a hurry.

(Check out the top 10 Dow Jones dividend stocks)

7. Mesabi Trust (MSB)

Dividend Yield: 11.3%

Market Cap: $275 million

Mesabi Trust (MSB) holds interests in various iron ore properties in the Mesabi Iron Range in Minnesota, including 9,750 contiguous acres in St. Louis County. This stock has performed remarkably well in recent months and is up about 400% from its March 2009 low. As industrial demand for iron picks up, MSB should see an even brighter future. With a forward P/E of just 13, the company has a lot of room to grow and should maintain its hefty dividend.

6. Prospect Capital (PSEC)

Dividend Yield: 13.6%

Market Cap: $788 million

Prospect Capital (PSEC) is a venture capital and private equity firm specializing in middle market, mature buyouts and recapitalizations. As the market environment improves and economic indicators point upwards, this is an area of big potential for investors. Prospect recently had been planning to spend a chunk of its cash on a buyout of competitor Allied Capital (ALD), but abandoned the deal to another company. It needs to find a way to spend all that dough without a buyout — and keeping its hefty dividend intact seems like a no-brainer.

>

5. PDL Biopharma (PDLI)

Dividend Yield: 14.2%

Market Cap: $850 million

You would never expect a small-cap biotech firm to have a monster dividend yield, but PDL BioPharma (PDLI) is a delightful exception. The company engages in the management of “antibody humanization patents” as well as royalty assets and license agreements with various biotechnology and pharmaceutical firms. In a nutshell, the process of “humanization” helps makes medications compatible with the biology of men and women so that they work properly. Since PDL doesn’t do research of its own and mainly is a cash-rich intermediary for patents, it has plenty of cash to pay some monster dividends.

4. MFA Financial (MFA)

Dividend Yield: 14.8%

Market Cap: $2.0 billion

MFA Financial (MFA) is a real estate investment trust (REIT) that primarily invests in mortgage-backed securities. According to Wall Street rules, a REIT is a corporation that invests in real estate in some form and gets a special tax designation as a “trust” that reduces or altogether eliminates income taxes. In return, Real Estate Investment Trusts must return 90% of their income to investors. This provides for some great dividends for income-oriented investors — such as the nearly 15% yield that MFA offers. (Get a full outlook for the REIT sector here.) Though mortgage-backed securities are not exactly the most stable business to be in, the company shows strong earnings and trades at a reasonable P/E of about 7, so there is reason to expect things to stay stable or even improve at MFA across the coming months.

3. Kohlberg Capital (KCAP)

Dividend Yield: 15.3%

Market Cap: $113 million

Kohlberg Capital (KCAP) is a private equity and venture capital firm specializing in buyouts. This cash-rich company typically hasn’t paid a first-quarter dividend, but has paid out cold, hard cash to shareholders in Q2-Q4 of 2008 and Q2-Q4 of 2009. The company’s huge yield does not appear in danger, but since KCAP skips a quarterly payout at this time of year there’s still a wait until the next dividend is disbursed… a lot can happen in that time. Still, Kohlberg Capital has seen steady earnings for the last four quarters.  Kohnlberg has reported steady earnings recently, but please be aware that at least 4 class action law suits have been filed against the company regarding its reporting practices and the company has admitted its previous reports have errors. Shares were really beaten down in January, dropping from about $5 a share around Christmas to under $4 in early February, but have rebounded since then. (Revised on 3/11/10)

(Check out the top 10 Dow Jones dividend stocks)

2. Och-Ziff Capital Management (OZM)

Dividend Yield: 15.9%

Market Cap: $1.2 billion

Och-Ziff Capital Management (OZM) is a publicly traded hedge fund and investment manager. The bull market has been very kind to this stock in the last year or so, and the results show in OZM’s bottom line. In its latest earnings report in February, Och-Ziff said its assets ballooned by $500 million in the last six weeks with a total of $24 billion under management as of Feb. 1. The company’s just paid a 58-cent quarterly dividend on Feb. 18 to shareholders of record on Dec. 31, and shows no sign of a cut anytime soon. Seeing as the company posted earnings nearly double what Wall Street was looking for in February, OZM shareholders can anticipate another dividend payout without any delays.

1. Annaly Capital Management (NLY)

Dividend Yield: 16.5%

Market Cap: $10.2 billion

Annaly Capital Management (NLY) is a Real Estate Investment Trust that deals mainly in mortgage-backed securities. Though there is a lot of uncertainty around these instruments that started the mess on Wall Street in late 2008, Annaly is showing signs of stability with consistent earnings growth in each of the last four quarters. (Get a full outlook for the REIT sector here.) It seems a safe bet that the company will keep its dividend intact with a steady stream of cash. However, we’ve learned that nothing is a sure thing on Wall Street especially when it comes to mortgages and other debt instruments.

Tell us what you think here.

Related Articles:

• 10 Oscar Stocks That Deserve the Spotlight
• An Ultra-High-Yield Energy Play
• Top 5 Stocks for March