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DRIP vs taking dividends in cash: which is better?

Reinvesting buys more shares automatically, which helps most when the price later rises. Taking cash keeps your options open and doesn't keep buying a stock that's falling. The tax bill is the same either way.

Comparison · 6-minute read · Updated 2026-11-01

The short answer

A DRIP (dividend reinvestment plan) turns each Dividend into more shares of the same stock. Taking cash puts the money in your account for you to spend or invest anywhere.

Neither one is "the smart one". A DRIP is an automatic decision to keep buying the same company at whatever the price is. Cash is a decision you make yourself, each time.

Side by side

The tax line surprises people. Reinvesting does not delay the tax. My guide to reinvested dividends and cost basis explains why, and the mistake that makes you pay twice.

A 3-year worked example (hypothetical)

You buy 100 shares of a made-up company at $50, so $5,000. It pays $2 a share once a year. To keep the math clean, we assume your broker can buy fractions of a share. Then the price slides: $50, $40, $32 on the three payment days.

With the DRIP on

End of year 3: 116.025 shares × $32 = $3,712.80.

Taking the cash

You keep 100 shares and collect $200 a year for three years: $600 in cash. End of year 3: 100 × $32 = $3,200, plus $600 cash = $3,800.

Then the price recovers

Now say the stock climbs back to $50 a year later. Here's where both paths stand against the $5,000 you put in:

Check the DRIP numbers a second way. Dividends reinvested were $200 + $208 + $218.40 = $626.40. They bought 4 + 5.2 + 6.825 = 16.025 shares. At $50, those extra shares are worth 16.025 × $50 = $801.25. Add the original 100 shares at $50, $5,000, and you get $5,801.25. Same answer.

What the example shows

While the price fell, the DRIP lost more: −$1,287.20 against −$1,200. Every dividend bought shares that then fell further. The cash path kept $600 out of the slide.

When the price came back, the DRIP came out ahead: +$801.25 against +$600. It had bought cheap shares on the way down.

So a DRIP is a bet that the price will recover. If the company is fine and the drop is temporary, reinvesting pays off. If the business is getting worse, a DRIP keeps buying more of it, every quarter, on autopilot. And both paths lost money for three years. The dividend didn't stop that, which is the point of are dividends free money?

Which one fits you

A DRIP fits when:

• you're building a position for years and don't need the cash;
• you'd be happy owning more of this company at a lower price;
• you know you'd forget to invest the cash otherwise.

Taking cash fits when:

• you want to choose where new money goes;
• you're unsure about the business and don't want to keep adding;
• you spend the dividends;
• you sell covered calls and want round lots of 100 shares.

In Canada, many brokers run a synthetic DRIP that buys whole shares only and pays out the leftover cash. In a TFSA or RRSP, there's no tax and no ACB to track either way.

Try your own numbers in our dividend calculator, which can reinvest or not. For the big picture, read dividend investing explained. If you sell calls on your shares, the wheel strategy shows why round lots matter.

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