So you're tired of hearing your friends brag about their stock market gains and want to join the party, but are afraid a stockbroker will laugh when you say how little you have to invest.

Don't despair. There is a way to become a stock picker with less than $500, and it is getting easier all the time.

Dividend-reinvestment plans, known as DRIPs, allow investors to plow their quarterly payouts back into shares of companies whose stock they already own. Most plans also allow investors to make additional purchases for as little as $10, even if the amount buys only a fraction of a share. You can use these plans to build up stakes of several hundred or thousand dollars in a small portfolio of companies.

In effect, you would be running your own low-cost mutual fund, one that would not require you to pay management fees and expenses, which typically take 1 percent a year from your assets. Another advantage over mutual funds is that your portfolio would not generate capital gains taxes until you sold the stocks. You would have to pay tax on the dividends, however, even though you are reinvesting them.

Getting started may be the hardest part of taking advantage of dividend-reinvestment plans, but there are ways around the early hurdles, too.

Traditionally, dividend-reinvestment plans were popular with utility companies seeking to raise capital. George Fisher, who publishes a newsletter called Power Investing With DRIPs (1-847-446-4406; www. powerinvestdrips.com), said the utilities used them to sell new shares to investors. Eventually, rule changes by the Securities and Exchange Commission made it easier for other kinds of companies to offer their shares through DRIPs.

One thing the companies are not allowed to do, however, is advertise these plans, Fisher said. That would be construed as making a securities offering without sending out a prospectus. In fact, one reason the plans are relatively unknown is that those who have a vested interest in publicizing them are not allowed to do so. It requires third parties to provide information and, often, to provide assistance to investors to get them started.

Still, since the rules were eased there has been an explosion of companies offeringdividend-reinvestment plans-- 1,272 as of last week, according to Vita Nelson, editor and publisher of the Money Paper newsletter, which is associated with a company that helps investors buy a single share in these companies.

There are several ways of getting started in a DRIP program. Some companies will sell you shares directly to get you going, but most will not. Several investment organizations provide help, and charge for their services.

It can be costly to get into DRIPs in a small way through a broker. To buy a single share of AT&T Corp., a favorite of small investors, for example, would cost $55.50 (Friday's closing price), plus a brokerage commission of $8 or so at the cheapest online broker. Shares held in a brokerage account are registered in the broker's name, so to participate in a dividend-reinvestment plan you would have to pay about $15 to get a certificate mailed to you, at which point you could join the company's DRIP.

Most DRIPs allow you to reinvest dividends and buy additional shares for free, and many of them charge low or no brokerage commissions when it comes time to sell.

But some companies, including AT&T, impose fees on dividend reinvestments and for direct cash purchases, according to Evergeen Enterprises, which publishes an annual guide to companies offering these plans (301-549-3939, $34.95 plus shipping).

Some companies go the opposite route and actually pay you to buy their shares. Pennsylvania Enterprises Inc., an energy, construction and real estate company, offers a 5 percent discount to the stock market price on reinvested dividends and direct cash purchases.

To avoid brokerage commissions and the hassle of getting a certificate mailed, several organizations will help you buy an initial share in a company with a DRIP. Temper Enrollment Services (1-800-295-2550, www.directinvesting.com), with which Nelson is affiliated, will buy shares in most U.S.-listed companies with DRIPs, and plans to extend that to all of them soon.

Temper charges a service fee of $20 for each stock, plus a brokerage fee (50 cents for one share, $1 for two to 20, and 5 cents each for 21 to 100 shares). The service fee falls to $15 for subscribers to any of its investment publications or members of its service, which at $49.50 a year gives access to its online newsletter about DRIPs, Direct Investing.

Alternatively, investors can buy a one-day membership for $10 and still get the $15 service fee, which makes sense if you plan to buy at least three different stocks.

Here is how an investor could start a four-stock mini-portfolio through Temper:

Nelson said she was currently recommending Coca-Cola Co., whose price has been pressured by the complaints of tainted drinks in Europe. This is the kind of situation that DRIP investors like, buying shares in companies that are having temporary troubles.

She also likes Clayton Homes Inc., a builder of manufactured houses, which she described as "overlooked." To spice up this portfolio, you could add Intel Corp. and Pfizer Inc.

To buy one share of each, an investor would have to pay $10 for a one-day membership, $60 for the four service fees, $2 in brokerage fees, and the prices of each of the stocks, $65 for Coke, $10.93 3/4 for Clayton, $67.12 1/2 for Intel and $37.80 1/2 for Pfizer. That comes to a total of $252.86 3/4. Temper also asks for a cushion of 10 percent in case the stock price rises while the order is being processed, but it returns any unspent funds.

None of these companies charge additional brokerage fees, according to the American Association of Individual Investors (1-800-428-2244, www.aaii.com). Subsequent purchases can be made for as little as $10 at Coca-Cola, $25 at Intel, $50 at Pfizer and $100 at Clayton.

A similar service to Temper's is offered by the National Association of Investors Corp. (1-877-275-6242, www.better-investing.org), though it only covers about 150 companies. The group's Low Cost Investment Plan is open only to members, so you have to join (for $39 a year). Membership includes a one-year subscription to the group's publication, Better Investing.

NAIC works with the companies on its list, and some prefer higher initial investments than one share. Clayton, for example, asks for a 25-share minimum.

On the other hand, NAIC's $7 setup fee is lower than Temper's. It also has a fluctuation fee that is usually $10, though some companies ask for more in case the shares rise before they can be purchased for the investor.

A third group that will help DRIP investors is the First Share cooperative (1-800-683-0743, www. firstshare.com), whose Personal Portfolio Service will buy shares in any listed company that its members request. That service will be attractive to investors who do not wish to be bothered with the record keeping required of most DRIP plans because it will track each position on a comprehensive statement.

First Share's established service lets members buy shares from others who already have positions in companies with DRIPs. Members pay $10 per request--or $5 for some popular companies--and are directed to other members who are willing to transfer a share from their DRIPs. The selling member gets $7.50 plus the price of the stock, and must arrange for the transfer, which requires a signature guarantee from a bank or brokerage house. Memberships cost $24 a year or $40 for two years.

You can skip the middleman entirely with about 250 companies that sell shares directly to investors. Interestingly, 13 of these companies do not pay dividends, according to the AAII.

You would need a little more money to start a mini-portfolio this way, because most direct-purchase plans have $250 or $500 minimums. Less-expensive offerings include those from Sears, Roebuck and Co. (1-800-732-7780 for the transfer agent) and Bob Evans Farms Inc. (1-800-272-7675), each of which will let you in for $50.

If this kind of investing appeals to you, you will need some information on the plans that are available and on the companies. The first stop for any serious investor with access to the Internet should be www.netstockdirect. com. Investors can sign up directly with plans on the site, and some offer a way to ease in over the course of several months.

International Business Machines Corp., for example, has a $500 minimum but will allow investors into its plan if they agree to invest $50 for 10 months. There is also a $15 setup fee for the account, a $1 fee for each automatic transfer or a $5 fee for cash purchases. If you want to sell the shares, it costs $15 plus 10 cents a share.

Although DRIPs are attractive to many investors, there are drawbacks. Chief among them is the record-keeping. For tax purposes, you have to know how much you paid for each share, and if a company executes a spinoff, you have to calculate your basis for each direct purchase and every quarterly dividend. This task is eased if you have your records on a computer, but in any case you would need to keep all of the statements for as long as you own the stock.

Broker-Free Investing

Here are some of the 227 firms that allow the investor to bypass the broker and buy directly from them, according to the American Association of Individual Investors (www.aaii.com).

Company (ticker) Phone Min. initial investment

Aetna (AET)1-800-446-2617 $500

American Express (AXP)1-800-463-5911 1,000

Bell Atlantic (BEL)1-800-631-2355 1,000

Campbell Soup (CPB)1-800-446-2617 500

Caterpillar (CAT)1-800-446-2617 500

Dow Jones (DJ)1-800-851-4228 1,000

Eastman Kodak (EK)1-800-253-6057 150

Exxon (XON)1-800-252-1800 250

General Electric (GE)1-800-786-2543 250

Goodyear Tire & Rubber (GT)1-800-317-4445 250

Lehman Brothers Holdings (LEH)1-800-824-5707 500

Merck (MRK)1-888-291-3713 350

Mobil (MOB)1-800-648-9291 250

J.C. Penney (JCP)1-800-642-9844 250

Procter & Gamble (PG)1-800-764-7483 250

Quaker Oats (OAT)1-800-344-1198 500

Tandy (TAN)1-888-218-4374 250

Wal-Mart Stores (WMT)1-800-438-6278 250

Walt Disney (DIS)1-818-553-7200 1,000

SOURCE: American Association of Individual Investors