Some of the advantages of utilizing a DRIP plan are; DRIP’s facilitate the purchase of shares at regular intervals for little or no commission, DRIP’s enable smaller purchases of shares that would not be cost effective through other means & some DRIP’s offer a discount on shares purchased.  A few examples are Bank of Montreal offering a 2% discount, Bank of Nova Scotia offering a 2% discount, Enbridge Inc. offering a 2% discount, Royal Bank of Canada offering a 3% discount.

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’.

For example

Regular investment                        Share Price                        Shares Purchased

$100                                                $11.00                                    9.09

$100                                                $12.50                                    8.00

$100                                                $10.75                                    9.30

$100                                                $15.60                                    6.41

$100                                                $18.35                                    5.45

Total $500                                                                        Total 38.25

The average cost per share acquired is calculated by dividing the total amount invested ($500) by the total number of shares purchased (38.25).  Average share cost is therefore equal to $13.07.   The average price per share paid by the investor can be calculated by dividing the total of the share prices paid ($68.20) by the total number of share purchases (5).  Giving you an average share price of $13.64.

This method ensures you are putting your dividend payments to work for you by forcing you to reinvest the money automatically instead of receiving the cash that could just be spent without notice on everyday life.  Any investor in common stock should be utilizing this plan to help them achieve their goal of early retirement!