Booyah Breakdown: Good to the Last DRIP

A better option might be to set up your DRIP through your brokerage, without going directly through the company. "Most Internet-based brokers allow you to reinvest your dividends for no charge," says O'Hara. For instance, sites like ShareBuilder and MyStockFund will let you reinvest for free. Then you'll have all your trades under one roof.

One caveat: You may need the stock certificates issued in your name to qualify for the DRIP through your broker, so be sure to check into that.

The DRIP Downers

While DRIPs allow you to add to your position without incurring heavy fees, there is some downside:

• Most DRIPs decide what day your new shares will be purchased -- usually once a month. So if you're a short-term trader, trying to buy in the dips, this might not work for you. Fortunately for the long-term investor, this isn't an issue.
• You can only sell on certain days. If you're trying to get out of a stock because of bad news, it might not be so easy. Again, not a problem for the long-term guy.
• Watch the fees. There may be extraneous fees just for being involved in the DRIP. Stay away from those plans. Try to invest only in DRIPs that don't charge you anything extra.
• Hone your record keeping. If you're in for the long haul, you could have hundreds of dividend purchases. Create a spreadsheet that tracks all those trades or use a program that tracks your trades for you, like GainsKeeper. Otherwise, see if you can participate in the DRIP through your broker.

But even with all that, a DRIP could still be a cheap way to amp up your position. So get to know the DRIP.