What Is DRIP?
Dividend Reinvestment Plan
| Feature |
Details |
| What happens |
Dividends buy more shares |
| Automatically |
No action required |
| Compounding |
Reinvested dividends grow |
| Cost |
Usually no fees |
Types of DRIP
| Type |
Description |
| Synthetic DRIP |
Through your broker |
| Full DRIP |
Direct with company |
| Company DRIP |
Some offer discounts |
Synthetic DRIP (Brokerage)
How It Works
| Step |
Process |
| 1 |
Company pays dividend |
| 2 |
Broker receives dividend |
| 3 |
Broker buys shares at market |
| 4 |
Shares added to account |
| 5 |
Fractional cash stays |
Features
| Feature |
Synthetic DRIP |
| Discount |
No (market price) |
| Fractional shares |
No (most brokers) |
| Enrollment |
Easy, in account settings |
| All holdings |
Can enable for all |
Major Canadian Broker DRIP
| Broker |
DRIP Available |
Fractional |
| Questrade |
Yes |
No |
| Wealthsimple Trade |
Yes |
No |
| TD Direct |
Yes |
No |
| RBC Direct |
Yes |
No |
| BMO InvestorLine |
Yes |
No |
| Scotia iTRADE |
Yes |
No |
| CIBC Investor’s Edge |
Yes |
No |
Setting Up Synthetic DRIP
Questrade
| Step |
Action |
| 1 |
Log into Questrade |
| 2 |
Go to Account Management |
| 3 |
Select DRIP |
| 4 |
Enable for account |
| 5 |
Choose securities (or all) |
Wealthsimple Trade
| Step |
Action |
| 1 |
Open app |
| 2 |
Go to stock/ETF |
| 3 |
Tap “Dividend reinvestment” |
| 4 |
Enable for that holding |
TD Direct Investing
| Step |
Action |
| 1 |
Log in to WebBroker |
| 2 |
Accounts β Account types |
| 3 |
Select DRIP settings |
| 4 |
Enable for specific securities |
General Process
| Requirement |
Details |
| Dividend amount |
Must cover 1 full share |
| Timing |
Applied on dividend date |
| Partial dividends |
Paid in cash |
Full Company DRIP
How It Works
| Step |
Process |
| 1 |
Register shares in your name |
| 2 |
Enroll with transfer agent |
| 3 |
Company issues shares directly |
| 4 |
May include discount |
Benefits Over Synthetic
| Feature |
Company DRIP |
| Discount |
Up to 5% on some |
| Fractional shares |
Yes |
| Direct ownership |
Registered name |
| Optional cash purchases |
Some plans |
Canadian Companies with DRIP Discounts
| Company |
Discount |
| Enbridge |
Up to 2% |
| BCE |
3% |
| TransAlta |
5% |
| Pembina |
2% |
Note: Discounts change. Verify current programs.
Setting Up Full DRIP
| Step |
Action |
| 1 |
Buy shares in broker |
| 2 |
Request DRS (Direct Registration) |
| 3 |
Contact transfer agent |
| 4 |
Enroll in DRIP |
| 5 |
Receive shares directly |
Transfer Agents
| Agent |
Companies |
| TSX Trust |
Many Canadian |
| Computershare |
Many Canadian/US |
| AST Trust |
Various |
DRIP by Account Type
TFSA
| Consideration |
Details |
| Tax impact |
None (tax-free) |
| Benefit |
Pure compounding |
| Drawback |
May accumulate more than plan to withdraw |
| Recommendation |
Generally good |
RRSP/RRIF
| Consideration |
Details |
| Tax impact |
None until withdrawal |
| Benefit |
Compounding |
| Drawback |
May need cash for RRIF withdrawals |
| Recommendation |
Good for accumulation, maybe turn off for income |
Non-Registered
| Consideration |
Details |
| Tax impact |
Dividends taxable whether reinvested or not |
| ACB tracking |
Must track for each reinvestment |
| Benefit |
Automatic compounding |
| Drawback |
Complex record-keeping |
| Recommendation |
Consider if can track ACB |
ACB Tracking for DRIP
What to Track (Non-Registered)
| For Each DRIP |
Record |
| Date |
Of reinvestment |
| Shares purchased |
Number |
| Price per share |
At reinvestment |
| Total cost |
Added to ACB |
Example ACB Tracking
| Date |
Shares |
Price |
Total |
Cumulative ACB |
| Initial |
100 |
$50 |
$5,000 |
$5,000 |
| Q1 DRIP |
2 |
$52 |
$104 |
$5,104 |
| Q2 DRIP |
2 |
$48 |
$96 |
$5,200 |
| Q3 DRIP |
2 |
$55 |
$110 |
$5,310 |
| Total |
106 |
|
|
$5,310 |
Average ACB = $5,310 Γ· 106 = $50.09/share
| Tool |
Notes |
| AdjustedCostBase.ca |
Free tracking |
| Spreadsheet |
Manual but works |
| Broker statements |
May not be complete |
When NOT to Use DRIP
Consider Avoiding If
| Situation |
Why |
| Need income |
Want cash dividends |
| Near retirement |
Building cash reserve |
| Tax-loss harvesting |
Want control of sales |
| Non-registered + lazy |
ACB tracking burden |
| Overweight one stock |
May want to redirect |
Better Alternatives
| Instead Of |
Consider |
| DRIP |
Take cash, invest manually |
| DRIP one stock |
Diversify dividends |
| Non-registered DRIP |
DRIP in TFSA instead |
DRIP vs. Manual Reinvesting
Comparison
| Factor |
DRIP |
Manual |
| Effort |
None |
Must act |
| Timing |
On dividend date |
When you choose |
| Diversification |
Same stock |
Any stock |
| Fractional |
No (synthetic) |
No |
| Control |
Less |
More |
When Manual Wins
| Situation |
Benefit |
| Multiple small dividends |
Pool then buy |
| Want diversification |
Different stocks |
| Commission-free broker |
No cost to trade |
| Rebalancing |
Redirect dividends |
DRIP with ETFs
ETF DRIP
| Factor |
Details |
| Works same |
Auto-reinvest distributions |
| No discount |
Unlike some stocks |
| Easy diversification |
Already diversified |
| Common choice |
XDIV, VDY, XIU, XIC |
Popular Dividend ETFs
| ETF |
Yield |
DRIP Eligible |
| XEI |
~4% |
Yes |
| VDY |
~4% |
Yes |
| XIU |
~3% |
Yes |
| ZDV |
~4% |
Yes |
Getting Started Checklist
Setting Up Broker DRIP
| Step |
Action |
| 1 |
Log into brokerage |
| 2 |
Find DRIP settings |
| 3 |
Enable for account or securities |
| 4 |
Confirm enrollment |
| 5 |
Monitor first dividend |
Tracking Setup
| If Non-Registered |
Action |
| 1 |
Set up tracking spreadsheet |
| 2 |
Record initial purchase |
| 3 |
Track each DRIP purchase |
| 4 |
Save for tax time |