Do NOT put Thermal compound on both the heatsink and the CPU as BillGallagher stated. Doing this can cause air pockets to be trapped between the CPU and heatsink. Air pockets could cause your CPU to run hotter, or even overheat, due to lack of contact with the thermal compound.
Follow the instructions for applying Arctic Silver as found HERE
. Arctic Silver, Inc. is the premier Thermal Compound manufacturer, and has put many hours into developing methods for applying their products.
The methods that Arctic Silver recommends for applying in a line or dot cause the thermal compound to spread out, away from the center, thus pushing any air out of the way, while not allowing for air to become trapped in pockets. This ensures good contact with the thermal compound.