Dividends are company earnings that are distributed to share-holders. When you're a member of a DRIP, you don't receive these payments as cash. Instead, you receive more company shares. Your dividend income is automatically reinvested.

DRIPS offer two major advantages. First, they eliminate the problem of how to reinvest dividend income. Second, they can save you money You pay no brokerage or stock market commissions. And some companies offer shares to their DRIP participants at 5% less than the current market price.
Even though you don't receive the dividend payments as cash, they're still considered taxable. Fortunately the Dividend Tax Credit, available on dividends received from Canadian corporations, gives them preferential tax treatment. After tax, $1 of dividend income is roughly equivalent to $1.33 of interest or employment income.

DRIPS are usually associated with blue-chip stocks, major corporations with a long history of distributing earnings to share- holders. To participate in a DRIP, you must be a registered shareholder and you have to sign up for the plan.
In addition to participating directly in a DRIP, you can get similar benefits through mutual funds or other investment funds. Most funds automatically invest any earnings, whether from dividends or interest income, in more units of the fund. FPG