Learn About Dividend Reinvestment Plans

Features of DRIPs

Note: This is a general discussion of DRIPs and their features. Plan terms vary. Plan documentation must be consulted to determine the specifics of each plan.

Fees to administer the plan are generally paid by the issuer offering the plan. You can build on your investment on a regular basis at no cost.

In situations where shareholders pay fees, they are usually minimal and a fraction of the cost of brokerage fees.

Optional Cash Payments (OCPs)

Some DRIPs offer a feature known as Optional Cash Payments (OCPs), which enables plan participants to purchase additional shares of the company's stock by making voluntary cash contributions to the plan.

The frequency of optional cash payments varies from plan to plan, but it is generally monthly or quarterly for plans offered by Canadian issuers. Plans may also have minimum and/or maximum permitted purchase amounts, per individual purchase or per year.

As with reinvested dividends, the shares are acquired with few or no commissions.

Canadian anti-money laundering laws require TSX Trust to obtain information from optional cash participants. If you intend to make optional cash payments, please send TSX Trust a completed Participant Declaration form, if you have not already done so, for the plan in question.

Fractional Shares

Participating in a DRIP enables shareholders to purchase and hold fractional shares.

For example, if on a payable date you are entitled to a dividend payment of $12.50, which is reinvested in additional shares at a purchase price of $4/share, you would receive 3.125 shares. Over time, fractional shareholdings accumulate into whole shareholdings for the plan participant.

How Shares are Held

Shares purchased in the plan are held in electronic (book-based) form on your behalf by TSX Trust. The plan shares are registered in your name, and you have all of the rights and privileges of a registered shareholder.

Statements showing transactions and plan holdings are usually issued on a quarterly basis. If desired, you can request share certificates, but plans may have some restrictions (e.g., a limited number of free withdrawals per year).

Note: For recommendations as to the overall suitability of an investment, please contact your financial advisor.

In general, DRIPs are a suitable investment for investors looking to build their holdings of a company over time, in a cost-effective manner. DRIPs facilitate the purchase of shares at regular intervals, for little or no commission. Most DRIPs enable smaller purchases of shares (including partial shares), which would not be possible or cost-effective through other means. Some DRIPs offer a discount on shares when they are purchased with reinvested dividends (the investor acquires shares at less than the market price). DRIPs with the optional cash payment feature enable the investor to establish a program of regular share purchases, at an investment amount that best meets his/her needs.

Specific benefits of participating in DRIPs depend on the plan features – please consult the plan documentation for details.

Dollar-Cost Averaging

Regular investments at the same dollar amount ensure that more shares are purchased when the share price is low and fewer are purchased when the share price is high. This approach effectively lowers the average price paid for shares and is known as ‘dollar-cost averaging’. Here’s how it works:

The average cost per share acquired is calculated by dividing the total investment ($500) by the total number of shares purchased (38.25).

Average share cost = $13.07 ($500 ÷ 38.25)

The average price per share paid by the investor is calculated by dividing the total of the share prices paid ($68.20) by the total number of share purchases (5).

Average share price = $13.64 ($68.20 ÷ 5)

To join a DRIP, you need to be a registered shareholder of the company.

Most DRIPs require ownership of only one share to enrol, however the minimum number of shares owned to qualify for participation can be higher, depending on the issuer.

Your place of residency may also impact your ability to participate in the plan, or participate in certain plan elements.

Each plan has an offering circular or prospectus that outlines plan features and eligibility requirements.

We recommend that you carefully review the plan documentation to determine the plan’s qualification requirements.

Before you join a company’s dividend reinvestment plan, you must be a registered holder.

To enrol in a dividend reinvestment plan, please follow these steps:

• Carefully review the DRIP documentation. Most plan documentation and forms are available on the TSX Trust website, or you can contact our call centre at 1-800-387-0825.
• Complete and sign the company-specific enrolment form. If there is more than one registered holder, each person must sign the enrolment form. If the plan allows optional cash contributions, you will be asked to provide additional information related to anti-money laundering legislation.
• Send the completed enrolment form by mail to TSX Trust at the address specified on the enrolment form and/or plan documentation.