A DRIP automatically buys more shares with each dividend, compounding for you.
What it is
A Dividend Reinvestment Plan, or DRIP, takes the cash dividend you receive and immediately buys additional shares (including fractional shares) of the same company instead of paying you cash. DRIPs are offered either directly by companies or, more commonly today, by brokerages. Some company-run plans buy at a small discount to market price.
Why it matters
Reinvesting dividends compounds your position over time, since the new shares themselves pay dividends, and it removes the temptation to spend or mistime reinvesting. The tradeoff is that, in a taxable account, reinvested dividends are usually still taxed in the year received even though you got no cash.
How it's calculated
Not a formula. Each pay date, the plan divides your dividend by the reinvestment share price to determine how many (often fractional) shares to add to your holding automatically.
How Quintarthai uses it
DRIP execution happens at your broker, not on Quintarthai; to evaluate whether a payer is worth reinvesting in, study its dividend history and durability on the company deep-analysis page.
Cross-border note. Reinvested dividends still create taxable income and cost-basis tracking in both countries. In Canada, hold U.S.-paying stocks in an RRSP to avoid the 15% U.S. withholding tax on dividends; a TFSA does not exempt that withholding. A 'synthetic DRIP' at a broker buys only whole shares.
FAQ
Do I pay tax on dividends I reinvest through a DRIP?
In a taxable (non-registered) account, yes. Reinvested dividends are generally taxed in the year you receive them, just like cash dividends, and you must track the new shares' cost basis. Inside registered accounts (RRSP, TFSA, IRA, 401k) the usual account rules apply instead.
What is the difference between a full DRIP and a synthetic DRIP?
A full (company-run) DRIP can buy fractional shares and sometimes at a discount. A synthetic DRIP, run by a broker, typically reinvests only enough to buy whole shares and pays any leftover as cash.
Check your understanding
You hold a dividend stock in a taxable account and enroll in a DRIP that reinvests all cash dividends into new shares. What is the key tax consequence?
In a taxable account, reinvested dividends are generally taxed in the year received just like cash dividends, even though you got shares instead of cash.