Dividend reinvestment plans offer shareholders a simple and inexpensive way to purchase stock directly through a company, without having to pay commissions. This type of investment plan does not require the services of a broker. Such plans enable investors to purchase small amounts of common stock right from the corporation itself — in many cases, as little as $25 worth of stock at a time. Depending on the company, there may be a small fee for handling your account. In most cases, you will have to already own at least one share of the stock (purchased through a broker) to be eligible to participate in the DRIP. And, as the name implies, this plan only works for stocks that pay regular dividends, which must be reinvested in the stock.

Close to 1,000 companies, most of them blue-chips, have dividend reinvestment plans. If you are involved in ten different dividend reinvestment plans with ten different companies, you will get ten different statements. Dividend reinvestment plans may be a good choice for long-term investors who want to continue to buy shares of a certain stock on an ongoing basis. You can probably find a listing of companies that offer dividend reinvestment plans at your local library or on the Internet, or you can call a company directly to find out if they offer this service.

Keep in mind that, as with all dividend earnings, there will be a tax bill at the end of the year. Even though you don't actually receive any money (since your dividends are used to get you more stock), you will have to pay taxes on any dividends you earned. Along those lines, it's critical that you keep very good records of your DRIP account. When the time comes for you to sell shares, you'll need to know exactly how much money you've paid for them, including your reinvested dividends. That way you will be able to accurately calculate the capital gain (or loss) at the time of the sale.