As you may know, investing some money in the stock market is a wise choice because stock investments (also called equities), over time, have provided higher returns than any other investment class. If you choose wisely, you'll get a double bonus of increased share price and the payout of dividends. Plus, there are tax breaks you can take advantage of, too. In tough times like these, dividends often make the biggest contribution to your portfolio.

Most other investment vehicles have scarcely kept up with inflation. Bonds, for example, rarely return anything more than inflation. Real estate is one of the notable exceptions, but real estate is currently undergoing a correction (or deflation) and many investors are simply choosing to stay away from real estate at the current time. After all, some markets are down 20 percent or more, and prices are still falling.

There are many ways to invest in the stock market:

• 401k

• Brokerages like eTrade, TradeKing, or Zecco

• Mutual funds

• Exchange Traded Funds

• Individual public companies

It's this last method that I want to consider today. This guide will show you what a Dividend Reinvestment Plan (DRiP) is and how to establish one. Not to confuse matters, there are also “Direct Investment Plans” that are similar, but with a few notable differences.

Dividend Reinvestment Plans are plans set up by individual public companies that seek to encourage individual investors to purchase company stock. The plan is generally administered by the company or a transfer agent; both keep meticulous records of how many shares you own, your dividend payout, dates, and other vitally important information.

Many plans require that you to own at least one share of the company stock in order to participate in their DRiP.

Here's how the reinvestment part works: If you own one share of stock at $10, and the quarterly dividend is 25 cents, you will have earned $1 in dividends. These dividends are then used to purchase a fractional share of the stock. At the end of one full year, you will own 1.1 shares. Over time, the dividends really add up.

Two often-omitted perks of DriPs are the fact that you can purchase the stock without paying a commission with your dividends (where the term Dividend Reinvestment Plan comes from) or additional cash (called Optional Cash Purchase Plans) and that you can often buy additional shares at a discount (most often ranging from 1 to ten percent off).

Other perks are that you're forced to use dollar-cost averaging where your dividends are buying more fractional shares when share prices are down and less fractional shares when prices are up. Finally, there is the HUGE perk that you are participating in the growth of a company and sharing distributed profits in the form of dividends that you're able to invest back into the company (remember, without commissions and often at a discount).

You can stop the dividend reinvestment program at any time.

How do you start?

You start by buying at least one share. You can do this through a brokerage or through the company itself (through the aforementioned Direct Purchase Plan). You can also use Sharebuilder, where you buy, say, $100 worth of shares each month and automatically have any dividends reinvested in the stock. This is perhaps the easiest way to go, but it does entail a small fee to purchase shares ($4 is the typical fee).

Either way, as you can see, it's easy to enroll in a DRiP.

So now you know what DRiPs are and how to start using them. Your next step: Do it!

(Okay, I know, you've got to pick a stock. That really is step 2.)