DRIP (Dividend Reinvestment Plan)

A DRIP, or Dividend Reinvestment Plan, automatically takes the dividends you earn and uses them to buy more shares of the same investment. Instead of receiving cash in your account, you get additional shares (or partial shares). It happens automatically once you turn it on.

How it works

Most Canadian brokerages offer a synthetic DRIP, which reinvests your dividends at no extra cost. When a dividend is paid, the brokerage uses it to buy whole shares at the market price. Any leftover amount that isn’t enough for a full share stays as cash in your account.

Some companies also offer a full DRIP directly, which allows fractional shares and sometimes offers a small discount on the share price. These are less common and usually require enrolling directly with the company’s transfer agent.

Why it matters

DRIPs are one of the simplest ways to put compounding to work. Every time your dividends buy more shares, those new shares earn dividends too, which buy even more shares. Over years, this cycle can meaningfully increase the size of your position without you having to do anything.

It also removes the temptation to spend the cash. Instead of seeing a small dividend payment and leaving it sitting idle, the money is immediately put back to work. For a broader look at how dividends fit into your portfolio, see our guide to dividends in Canada.

Example

Say you own 200 shares of a Canadian bank stock trading at $65, and it pays a quarterly dividend of $0.95 per share. Each quarter, you’d receive $190 in dividends. With a DRIP turned on, your brokerage would automatically buy 2 more shares ($130) and leave the remaining $60 as cash. After a year, you’d own 208 shares instead of 200, and those 8 new shares would earn dividends too. Over a decade, this cycle adds up meaningfully without you lifting a finger.

You can usually turn a DRIP on or off at any time through your brokerage. There’s no cost and no commitment. If you want cash instead at any point, just switch it off.