How to reinvest dividends automatically
Dividend Reinvestment Plans (DRIPs) explained.
CIBC Investor’s Edge
4-minute read
Many investors enjoy the steady income that comes from dividend-paying stocks, ETFs, or mutual funds. But there’s another way to use those dividends. Instead of withdrawing the money or letting it sit in your account, you can reinvest it automatically to buy more of the same investment.
This is the idea behind a Dividend Reinvestment Plan, or DRIP. With a DRIP, your dividends automatically purchase additional shares of the investment that generated them. It’s a simple, set-it-and-forget-it way to grow your portfolio over time.
Let’s take a closer look at how DRIPs work, when they might be a good fit and what to keep in mind when considering DRIPs.
A DRIP is a plan that lets you automatically reinvest dividends into more shares of the same investment — no trade orders, no manual steps, no commissions and no timing decisions. Once you’re enrolled, the reinvestment happens automatically at no cost.
For example, let’s say you own 100 shares of a dividend-paying stock or ETF. When a dividend is paid, Investor’s Edge automatically uses the payout to buy more whole shares of that same investment. If your dividend is $50 and each share costs $25, you’d receive two additional shares.
DRIPs are a popular tool among long-term investors for several reasons.
- Automatic compounding: Reinvesting dividends increases the number of shares you own, which can generate more dividends over time.
- Stay fully invested: Rather than letting dividends sit in cash, which may earn little or no interest, DRIPs keep your money working.
- Dollar-cost averaging: When you reinvest dividends regularly, you naturally buy more shares when prices are low and fewer when prices are high.
- No commissions: On the Investor’s Edge platform, DRIPs come with no trading fees or commissions, making them a low-cost strategy to grow your investment.
Setting up a DRIP is quick and easy.
On the Investor’s Edge platform, you can enrol eligible investments — typically stocks, ETFs, or mutual funds that pay regular distributions — through your account settings. You can change your selections at any time.
After you enrol an investment, your dividends automatically buy additional full shares of that investment. If your dividend isn’t large enough to buy a full share, the cash portion remains in your account.
At Investor’s Edge, dividend reinvestment is typically handled through our dealer DRIP, which applies automatically to all eligible securities in your account once your account is enrolled. Some companies also offer their own issuer DRIPs, which operate differently and may involve direct enrollment with the company. These plans can offer unique features, such as discounted shares, but they follow a separate process from the DRIP/SharebuilderTM Plan that you can set up online through your Investor’s Edge account.
DRIPs tend to work best for investors who are focused on long-term growth and don’t need dividend income in the short term. They’re especially popular in registered accounts such as TFSAs or RRSPs, where reinvested income can grow tax-free or tax-deferred.
You might consider using a DRIP if:
- You want to grow your investment over time with minimal effort
- You prefer to stay fully invested rather than hold excess cash
- You’re investing in a diversified portfolio of dividend-paying assets
DRIPs aren’t for everyone, and that’s okay.
If you rely on dividend income to cover your expenses, or if you prefer to reinvest dividends elsewhere — to rebalance your portfolio, for example — a DRIP might not be the right fit.
You should also keep in mind that DRIP purchases happen automatically on the dividend payment date, which means you can’t control the reinvestment price.
DRIPs aren’t a one-size-fits-all solution. However, for many long-term investors, they offer a low-effort, low-cost path to growth and another step towards meeting your investment goals.
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