DRIPs

If you think dividend-paying stocks might be good for you, you may want to consider participating in a DRIP. DRIP is common shorthand for "dividend reinvestment plan." Not every investor needs dividends for income, so many dividend-paying companies offer the option of automatically reinvesting dividends in additional shares.

How DRIPs can help you

Signing up for DRIPs may help you focus on a company's long-term business prospects (because you will presumably participate in a DRIP for a long time), and it also allows investors to benefit from dollar cost averaging. Many plans even offer a discount to the market price of the shares on the payment date.

You can find out more about a company's DRIP by visiting the investor relations section of its Website; you can also find out whether a company offers a DRIP or not on investor sites like Morningstar.com. Participating in a company's DRIP requires having the shares registered in your name (rather than "street name," where your broker is listed as the owner on your behalf), but before starting the paperwork to retitle your stock holdings, you'll want to find out if your broker offers a low-cost or free dividend reinvestment option as well—many of the larger firms do.