Dividend reinvestment plans (DRIP Canada) are a popular tool for Canadian investors who want to grow holdings through dividend reinvestment. A dividend reinvestment plan automatically uses cash dividends to buy more shares of the same company, often without commissions and sometimes at a discount — a simple way to support dividend growth investing strategies.
What is a DRIP?
Definition: A DRIP automatically converts cash dividends into additional shares of the issuing company.
Types: Company-sponsored DRIPs, brokerage-sponsored DRIPs, and informal dividend reinvestment via your broker.
Why it matters: Reinvesting dividends compounds returns over time and can accelerate portfolio growth without additional cash contributions.
How DRIPs work in Canada
You own eligible shares.
You enroll in the plan (through the company's transfer agent or your broker).
Dividends are paid in cash on the dividend payment date.
Dividends are used to buy additional shares (or fractional shares) automatically.
You receive a statement showing the number of shares purchased and the per-share price.
Note: Some company DRIPs offer a discount (e.g., 1–5%) on share purchases, and some allow optional cash contributions.
Main types of DRIPs
Company-sponsored DRIPs
Run by the issuer's transfer agent.
May offer discounts and optional cash purchases.
Often allow buying fractional shares directly.
Brokerage DRIPs
Offered by brokerages to reinvest dividends into additional whole or fractional shares within your account.
Easier to manage with other investments.
Non-sponsored/Informal
Your broker reinvests dividends by purchasing shares on the market (may not offer discounts; may incur commissions).
Benefits of using DRIPs
Automatic compounding. Small shares add up over decades.
Dollar-cost averaging. Reinvesting at different market prices reduces timing risk.
Lower cost of buying. Many company DRIPs waive commissions; some include discounts.
Forced savings habit. Reinvesting keeps money working instead of sitting idle.
Risks and downsides
Concentration risk. Reinvesting increases exposure to the same company.
Taxable events. Dividends are taxable in non-registered accounts even if reinvested.
Liquidity limits. Reinvested shares are not cash — selling requires a transaction.
Record-keeping complexity. Tracking adjusted cost base (ACB) for many small purchases can be tedious.
Taxation: what Canadians need to know
Dividends are taxable when paid, whether you receive cash or reinvest through a DRIP.
Eligible Canadian dividends receive the dividend tax credit; report amounts per CRA rules.
Adjusted cost base (ACB): Each reinvested dividend creates a new ACB entry. Accurate ACB matters when you sell.
In registered accounts (RRSP, TFSA, RESP):
RRSP (REER): Dividends and growth are tax-deferred.
TFSA (CELI): Growth and dividends are tax-free.
RESP (REEE): Growth is tax-deferred for beneficiaries.
CRA resources: For tax rules and reporting, see the Canada Revenue Agency (CRA) main site.
DRIPs in registered vs non-registered accounts
Registered accounts (RRSP/TFSA/RESP):
Recommended for holding DRIP-eligible stocks if you want tax sheltering.
No immediate tax on dividends or capital gains inside these accounts.
Non-registered accounts (taxable):
Dividends tax applies each year — you'll receive T5 slips.
Keep careful ACB records for capital gains calculations.
How to enroll in a DRIP (step-by-step)
Check eligibility. Confirm the stock offers a DRIP (look on issuer site or transfer agent).
Decide where to hold shares. Registered account vs chequing-funded brokerage account.
Contact your broker or transfer agent. For company DRIPs, enroll via the transfer agent; broker DRIPs are set in your account options.
Complete forms. Provide account details and your choice (enrol full or partial holdings).
Confirm enrollment. Verify the effective date so you know which dividend payments will reinvest.
Monitor statements. Watch for confirmations of reinvested purchases and updated ACB.
Choosing stocks for DRIP and dividend growth investing
Look for stability and dividend history.
Companies with consistent dividend increases fit dividend growth investing.
Check payout ratios and cash flow.
High yield isn't always better — ensure dividends are sustainable.
Consider diversification.
Avoid overweighting single sectors (e.g., banks, utilities).
Research DRIP-specific perks.
Some companies offer discounts or optional cash purchase programs that make DRIPs more attractive.
Costs to watch for
Commissions and trading fees. Brokerage DRIPs may still incur fees; company DRIPs often avoid them.
Spread and price execution. Market-based reinvestments can execute at unfavourable prices.
Administrative fees. Some company plans charge small fees for optional cash purchases or withdrawals.
Record-keeping checklist
- Save T5 slips and annual statements.
Log each reinvestment date, number of shares, and per-share price.
Track ACB across multiple small purchases.
Keep broker/transfer agent confirmations for proof if CRA audits.
When to sell DRIP shares
Rebalance if a stock grows too large in your portfolio.
Take profits when price targets or fundamental changes occur.
If dividends cut and outlook weakens, consider exiting.
Tax planning: Selling inside a TFSA avoids capital gains taxes; selling in a non-registered account may incur capital gains and affect your taxes.
Alternatives and complements to DRIPs
Automatic ETF contributions. Use ETFs that pay dividends, then reinvest distributions manually or via broker DRIP.
Dividend ETFs. Offer diversification and automatic reinvestment features at some brokerages.
Manual reinvestment. Use dividend cash to buy different stocks to rebalance or diversify.
Frequently asked questions (quick)
Do I pay tax on DRIP purchases? Yes — dividends are taxable in non-registered accounts. A reinvestment does not avoid tax.
Can I reinvest in a TFSA? Yes — holding DRIP-enabled stocks inside a TFSA shelters dividends and gains.
Are DRIPs always free? Not always. Company DRIPs often have lower fees than broker trades, but optional cash purchases or admin fees may apply.
What about U.S. dividends? U.S. dividends may have withholding tax when held in non-registered accounts; consider USD accounts and tax implications.
Useful Canadian resources
Canada Revenue Agency (CRA) — tax rules and reporting.
Financial Consumer Agency of Canada (FCAC) — Investing — general investor guidance.
Ontario Securities Commission — Dividend Reinvestment Plans (DRIPs) — investor-focused DRIP overview.
Final checklist before enrolling
- Confirm tax treatment for your account type.
Check for discounts or fees in the DRIP.
Plan for record-keeping (ACB).
Avoid over-concentration in a single stock.
Decide whether to hold within RRSP/TFSA/RESP for tax benefits.
DRIPs can be a powerful, low-cost way for Canadian investors to compound income and support a dividend growth investing strategy — provided you manage taxes, concentration, and record-keeping carefully.