5 High-Yield Stocks That Look Ready to Pop

Tickers in this article: RY PCL TRI SJR CHT
BALTIMORE ( Stockpickr) -- There's no two ways about it -- it stinks to be an income investor right now.

>>5 Dividend Stocks Itching to Pay You More

There are two pretty important metrics that measure just how well off income investors are: how much they're getting and how much they're losing. With rates being held down near historic lows, how much they're getting isn't much. But how much they're losing from inflation is.

That's creating a toxic environment for income-seekers right now, especially in assets that are perceived as "low risk" -- like treasuries.

There are some big alternatives, though. For income investors, stocks offer some attractive dividend yields (for major indices it's the highest in two decades, in fact). And some are predisposed to tack big capital gains on top of that. I know that's a big claim, but the data bears it out:

Going back over the last decade, buying heavily shorted large and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year. That's some material outperformance during a decade when decent returns were very hard to come by.

It's worth noting, though, that market cap matters a lot -- short sellers tend to be right about smaller names, with micro-caps delivering negative returns when the same strategy was used.

>>5 Breakout Stock Plays: Must-See Charts

Today, we'll replicate the most lucrative side of this strategy with a look at five big-name stocks with high dividend yields that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in the final push of 2012.

In case you're not familiar with the term, a "short squeeze" is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

Naturally, these plays aren't without their blemishes -- there's a reason (economic or otherwise) that these stocks are being heavily shorted. But for investors looking for exposure to a speculative play with a beefier risk/reward tradeoff, these could be powerful upside plays for the coming year.

Without further ado, here's a look at our list of large-cap short squeeze opportunities .

Royal Bank of Canada

First up is Canada's largest bank, Royal Bank of Canada (RY) . With more than 15 million clients in 51 countries and over CAD 800 billion, RY is also one of the biggest diversified banks in all of North America. And just try getting this kind of yield out of a major U.S. bank -- RY currently pays out a 4.18% dividend yield. That hasn't kept short sellers from piling into this stock, however. Currently, RY's short interest ratio comes in at 22, which indicates it would take more than a month of buying pressure for short sellers to cover their bets at current levels.