As a college student or recent grad, investing your money may be one of the last things on your mind. Retirement is so far away (shoot, you’ve barely started working) and if you’re living off leftover pizza in dingy off-campus housing, saving money is not always feasible. Still, if you’re able to save a little cash or if that savings bond your grandparents bought you when you were born matures, it’s not a bad idea to start investing.

Investing at a young age has immense benefits, ones you will not see immediately but you will enjoy when you’re (gasp!) your parents’ age. Forgoing a new stereo or video game system now and investing that money for later will have much greater long-term benefits than being able to play Call of Duty until the wee hours (plus the dudes next door have an XBox, right?). Even with just the couple hundred bucks or so you save you can make solid investments in the stock market.

The idea with investing at a young age with limited funds is to make solid picks that will be around in 20, 30, even 50 years, and that will continue to grow (albeit, in most scenarios, slowly) and make for a fruitful investment. High-risk stocks may appeal — I mean, as a young investor, what do you have to lose? — but the chances of catching lightning in a bottle and buying the next Microsoft early is going to happen in only the rarest of circumstances.

A better use of your money, which there probably is not a lot of, is to go with something more established. These may be pricier, but will have an exponentially better chance of keeping their value and gaining more. Think of universal staples you and people the world over use and frequent daily: McDonald’s, Coca-Cola, Costco, Google if you can afford it. Right now, you’re building the base of your portfolio, and these stocks will help provide a rock-solid foundation.

If you have the money to take a risk, take a calculated one, and one that doesn’t take up too much of your investing capital. Take what you’ve learned in school or one of your passions and find a company doing great things in that interest. Studied world hunger? Why not invest in a fertilizing company on the rise? As the world’s need for food production goes up, so will its usage of fertilizer.

Above all, don’t buy blindly or do what the pundits say. Do some research. This is your money, and you need to make it count now to have it count in the future. Follow stocks. Educate yourself on financial lingo, maybe even buy and read a Wall Street Journal. A smart investor is an educated investor, and something any educated investor will tell you is to enter the market early and make wise choices by investing in mainstay companies that aren’t going anywhere anytime soon.

The stocks mentioned are all Dividend Aristocrats, meaning they have over 25 straight years of dividend increases. Each has a minimum yield of three percent and all are considered the highest yielding of their group. With one of the highest NYSE yields, Pitney Bowes represents the highest yielding stock on the list. Its annual dividend should increase by two cents early this year.

Kimberely Clark was founded 138 years ago and has paid dividends annually since 1935. Scott, Kleenex, Cottonelle, and Kotex are among its famous brand names. Though earnings have increased only modestly during the past ten years, the company has managed to extend its duration of higher dividend offerings. The stock currently has a dividend yield over four percent.

Johnson & Johnson is one of the world’s largest healthcare companies, with consumer, pharmaceutical and medical devices and diagnostics divisions. This is one of only a few companies with a credit rating of AAA and its dividend yield is 3.5 percent. Homecare products company Clorox is another high-yielding dividend stock, with a yield of over three percent.

Value investors will find the lack of participation in the 2010 market recovery by these companies attractive. Dividend yields are good and price/earnings ratios are moderate. Each of these companies operates worldwide and expects eastern Asia and other developing areas to contribute to much of its earnings growth. Throughout the financial crisis, these companies managed to increase their dividends and should continue to do so in 2011.

In general, older and more established companies are those that pay dividends. This is because they are not in high-growth mode and therefore do not need to reinvest all their earnings into the company to fund future growth. This is not to say that investors cannot find newer companies that pay dividends because these definitely exist, especially in the hot market sectors.

Most companies pay their dividends quarterly, though some opt for a twice per year or annual dividend payment. When the board of directors determines the dividend amount, the investor should divide this by the dividend payment frequency. For example, a $1.00 dividend should be divided by four if company pays dividends quarterly.

Companies utilize different methods when determining the dividend amount. Some first allocate money to project development and pay out a portion of the remainder as dividends. Others designate a certain percentage of earnings as dividends in advance and if earnings are better than expected, they may pay some additional dividends to shareholders.

Paying dividends reassures investors that the company is financially sound. Investors like this regular reward for their patronage and some make a living off the money earned from these stocks. Companies that pay dividends are under a lot of pressure to maintain or increase these payments over the years so they need to carefully determine their method and frequency of dividend payment ahead of time.

If the company offers a dividend reinvestment plan, or DRIP, the investor can enroll in this and the dividends will automatically be reinvested to purchase additional shares. Even some mutual funds permit investors to opt for automatic dividend reinvestment. Other companies allow investors to make voluntary contributions used to purchase shares.

To set up a dividend reinvestment plan, investors can use a full-service broker that will allow them to reinvest dividends from owned stocks. They can also utilize an online discount broker that offers DRIPs, and this and the first option allow investors to keep all their stocks in one location. An alternative is to purchase stock directly from the company. Investors can also buy stocks through a bank transfer agent.

Taxes are paid on dividends, so investors should think about placing dividend reinvestment stocks into a retirement account to protect the dividends from any current tax liability. In addition, some plans charge high fees for reinvesting dividends. Investors should research these prior to making any purchases because these fees reduce potential profits.

Reinvesting dividends to purchase additional shares is a smart move because it puts this free money to work for the investor. It also allows individuals to take advantage of dollar cost averaging when buying shares, which can save them money over the long term. Using the dividend payment to buy more stock in the company results in compounding of the dividends. More dividend payments are received in the future due to owning more shares.

Going back as far as 1926, studies confirm that nearly half of the return on the S&P 500 was the result of dividends paid by companies included in this index. However, it is not just the return that matters. The duration of this return and the ability for it to periodically increase are also important. Investors should find dividend investments that will be reliable over the long-term.

Analysts have found at least ten companies that have paid dividends for more than a century and have increased their dividend payments for at least 20 years. This is quite an impressive feat, considering that within the past few years, many companies have cut or stopped paying their dividends. Some others who have continued theirs have not been able to increase them.

Individuals will recognize the names of many companies on this list. Though these may not offer the highest yields, they are known for their stability and reliability when it comes to dividend payments. They are: Chubb, PPG, Colgate-Palmolive, Coca-Cola, Procter & Gamble, UGI, Consolidated Edison, Eli Lilly, Exxon Mobil, and Stanley Works. This last company is the oldest dividend payer on the list and has had 42 consecutive dividend increases.

Finding a company with a strong dividend culture, such as those listed above, is important. Other factors to consider are fair value, ability to cover the dividend, and dividend fundamentals. Making a wise choice when it comes to dividend stock investments makes the investment portfolio more stable in ways other than just receiving regular passive income from dividend payments.

First, it is important to understand why companies pay out dividends. These payments provide investors with a certainty regarding the financial well-being of the company. This may make an individual more inclined to invest in this stock versus one that does not pay dividends. Once a company begins paying dividends, it is important that it properly manage its dividend distribution process.

Companies generally employ a residual dividend policy, stability policy, or a combination. Under the residual policy, the company relies on equity that is internally generated to finance its new projects. Dividend payments result from any leftover or residual equity after the requirements for project capital are met. Attempts are made to balance the debt/equity ratios, so dividends will only be paid if money remains after meeting operating and growth expenses.

The residual policy can result in fluctuating dividends, while the stability policy provides more certainty. Companies may opt for a cyclical policy that establishes dividends as a predetermined fraction of quarterly earnings. Alternatively, they may opt for quarterly dividends established as a fraction of annual earnings. Either way, a stability policy aims to reduce uncertainty from an investor perspective, providing shareholders with income.

A hybrid of the stable and residual dividend policy can also be used. Companies look at the debt/equity ratio as their long-term goal. The company establishes a dividend that is a small portion of its annual income and can easily be maintained. An extra dividend will be paid when income exceeds targeted levels, allowing investors to share in the good performance of the company.

Some stocks look great on the surface because they represent a hot new product or industry sector. However, these fad stocks come and go and if investors do not get in and out of them at the right time, these can be losers. Dividend stocks are a much smarter investment because they provide income no matter the market conditions.

Dividend stocks begin paying money to the investor as soon as they are purchased. They continue to make this payment for as long as the investor holds them, barring company closure or cutting of dividends. The returns provided by these stocks are usually higher than savings account or certificate of deposit interest rates.

With stocks, there is always the risk that the share price may drop, leaving investors to face a loss when selling. Therefore, it is important to find dividend stock-paying companies that are stable, have good dividend payment history, and have a strong chance of continuing that payment. If the company continuously performs well, the stock price should increase and the dividend payment may also increase.

When investors are researching these stocks, they should identify whether they want those that pay dividends monthly, quarterly, or annually. The financial needs of the investor may determine the answer, if the payments will be spent. If the dividends will be reinvested, the frequency of dividend payment may not matter to the investor. This passive income will continue to flow over the years, building a nice nest egg for investors.

Anyone faced with the decision between a non interest-paying stock, CD, savings account, or dividend stock should consider the dividend stock. The only investment required is the money to purchase the shares. Once they hold the stock, investors need not do anything in order to receive the dividend payments, adding passive income to their portfolio.

The Dow Jones Industrial Average is an index of the 30 largest U.S. companies that are publicly traded. Several members of this index delivered some outstanding gains in 2010 and did so with less volatility and risk than small or mid-cap stocks because they are blue chips. Though the Dow has only advanced an unimpressive 7.8 percent this year, these companies provided it with the most help.

Disney experienced a 20 percent increase in its earnings and a 5.3 percent increase in sales this year. During the past three months, Disney stock has risen 15 percent. The defense and aerospace company Boeing experienced a 20 percent gain in stock price this year, 4.4 percent of it within three months. Disney is rated as buy and Boeing as hold by some experts.

McDonald’s is the largest restaurant company in the world. During 2010, the stock of this fast food giant returned 27 percent. In three months, it experienced a 6.6 percent rally and is currently rated as a buy. Chemical manufacturer DuPont experienced an impressive 44 percent gain this year, 15 percent during the most recent three months, and is rated as buy.

The number one Dow dividend stock for 2010 is mining and construction equipment company Caterpillar. In 2010, its stock jumped 53 percent and during the past three months, it has advanced 28 percent. This performance was aided by the rapid growth experienced within emerging markets and of course, this stock is currently rated as buy.

Receiving the reward of a high dividend yield often requires higher tolerance of risk. Investors should look at dividend yield using automated stock screening tools like the MarketScope Advisor from Standard & Poors. Dividend yield is calculated by using the dividends of the past twelve months or by dividing the upcoming twelve months’ worth of dividends by the current stock price.

Dividend yields should exceed the overall market and be about four or five percent. Prospective investors should also research how likely companies are to continue these attractive dividend payouts. A company that is losing money may not be around to pay those great dividends over the long-term. Look at the profitability of the company by assessing return on equity, which should be about ten to twelve percent.

Another factor to assess is debt because too much of this can put future dividend payments at risk. Individuals should research the debt to equity ratio of the company and it should be 0.5 or less. They can also filter the company size for their prospective investments by identifying market capitalization. Strong and stable companies have a market cap of at least $2 billion.

Valuation represents how much the market pays for the earnings stream of the company. Dividend investors seek companies with low valuations because that means the company is undervalued. Using the price earnings ratio, investors can find companies whose stock prices have been beaten down relative to their earnings.

In itself, a single dividend payment, whether it is paid annually or quarterly, may not seem like it would make a difference if reinvested. When viewed in aggregate and from a long-term perspective, reinvesting dividends makes quite a difference in overall portfolio value. When dividends are reinvested, additional shares of stock are purchased, which allows investors to compound original dividend returns.

When the share price increases, the shares purchased are more valuable. In addition, the investor makes more passive income by earning more dividends since additional shares were previously purchased. Looked at from this perspective, the investor actually wins twice, which is more than any non-dividend stock can boast.

Dollar cost averaging is another benefit of reinvesting dividends and increasing passive income. Share prices fluctuate and investors will be able to purchase more shares when prices are low and fewer shares when prices rise. Overall, investors avoid the extreme high and low price points when they utilize this investment method. The value of the portfolio remains more favorable from a comprehensive perspective.

Companies that issue dividend payments often have dividend reinvestment plans that allow individuals to automatically reinvest their dividend payments at no additional charge. Partaking in such a plan may expose the investor to discounted share price, no commissions, and the opportunity to purchase fractional shares. Automatically reinvesting dividends is the best form of passive income and an excellent way to grow the investment portfolio over the long term.