Make Money in High-Yield Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect stocks with solid dividend yields to reward shareholders over the long term, the Vanguard High Dividend Yield Index ETF (NYSE: VYM  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a low 0.18%. Its dividend yield was recently a bit north of 3%.

This ETF has performed reasonably, but it's also very young, with fewer than five years on the books. It slightly underperformed the S&P 500 (INDEX: ^GSPC) over the past three years, but trounced it last year and is topping it so far this year. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a turnover rate of 34%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Among these are two tobacco companies, Altria (NYSE: MO  ) , up 18%, and Philip Morris International (NYSE: PM  ) , up 20%. While Altria faces a gradually falling smoking rate in the U.S., its global counterpart has rosier prospects, serving many growing middle classes around the world, where would-be smokers can increasingly afford to do so, or to do so more often.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. General Electric ! (NYSE: GE  ) , for example, gained just 5%, but investors are excited about the company's strong growth predictions for its energy infrastructure division, thanks to expected demand from China and other developing regions. Interestingly, as GE expands into China-based aviation projects, it's competing with other major components of this ETF -- Boeing (NYSE: BA  ) , which shed about 7% over the past year, and United Technologies (NYSE: UTX  ) , which gained 3%.

Meanwhile, Boeing has some investors worried about expected losses on its new Dreamliner in the coming years, while United Technologies has surprised some with its plans to acquire sizable rival Goodrich.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 stocks for your retirement portfolio.