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DRIP investing — Dividend Reinvestment Plan — is one of the simplest ways to harness compound growth. Instead of receiving dividends as cash, a DRIP automatically uses those dividends to purchase additional shares. Over decades, this compounding snowball can dramatically accelerate wealth building with zero effort on your part.
How DRIP Works in Canada
Synthetic DRIP (most common): Your broker uses the dividend cash to buy additional whole shares at market price, commission-free. Any remainder stays as cash. Available at Questrade, Wealthsimple, TD, RBC, BMO, and all major brokers.
Company-Direct DRIP: Some companies (RY, ENB, FTS) offer DRIPs through their transfer agent, sometimes with a 1–5% discount on reinvested shares. More paperwork, but can be worthwhile for large positions.
The Power of DRIP: A Canadian Example
100 shares of Enbridge at $55/share with a 6.8% yield ($3.75/year per share). Each quarter you receive $93.75 in dividends, which buys 1 new share via DRIP. Next quarter, dividends are calculated on 101 shares, buying slightly more. After 20 years with no additional contributions, DRIP turns your initial investment into significantly more wealth than taking dividends as idle cash.
Which Brokers Support DRIP?
All major Canadian brokers offer free synthetic DRIP: Questrade, Wealthsimple (fractional DRIP), TD Direct, RBC Direct, BMO InvestorLine, CIBC Investor’s Edge, and Interactive Brokers. Wealthsimple is the only Canadian broker that supports fractional DRIP — your entire dividend is reinvested, even if it does not cover a full share.
DRIP and Taxes
TFSA/RRSP: No immediate tax — DRIP shares grow tax-free or tax-deferred. Non-registered: Dividends are taxable in the year received even if reinvested. Each DRIP purchase increases your adjusted cost base (ACB) — keep records for capital gains calculations when you eventually sell.
Frequently Asked Questions
What is DRIP investing?
DRIP stands for Dividend Reinvestment Plan. Your dividends automatically buy additional shares of the same stock or ETF, compounding your returns without effort or commissions.
Is DRIP free at Canadian brokers?
Yes. All major Canadian brokers offer free synthetic DRIP. Some companies also offer direct DRIPs with potential share price discounts.
Are DRIP shares taxable in Canada?
In a TFSA or RRSP, no. In a non-registered account, reinvested dividends are taxable in the year received. Track your ACB carefully.
Can you DRIP ETFs in Canada?
Yes. Most brokers support DRIP on ETFs. You can DRIP XEQT, VEQT, VDY, ZDV, and most TSX-listed ETFs that pay distributions.