A Dividend Reinvestment Plan (DRIP) offers that possibility. Instead of sending you the dividend, the company buys more shares for your account, usually at the prevailing market price, sometimes at a discount (e.g. Bank of Montreal has recently announced that it is offering DRIP shares at 2% discount). Two big pluses - 1) it's automatic after you set it up through your brokerage, a great convenience in time and effort saved, especially with multiple holdings and, 2) it's free - you pay no brokerage commissions.
Brokers differ quite a bit in what they offer:
- purchase only whole shares at a time (in which case you end with small amounts of residual cash) or even fractions of shares
- enrol stock by stock for DRIP or for the whole account
- number of stocks which can be DRIP'd (some publish the list like BMO Investorline's here, or you must call the broker to find out)
Some brokers even offer what is known as a "synthetic DRIP" service, whereby the broker will purchase for free extra shares with the dividends even though the companies don't offer it themselves. This can extend an investor's DRIP capability to things such as ETFs, as described by CanadianFinancialDIY in this post.
Canadian shares and trust units with DRIP programs
Stingy Investor publishes here a list, as does blogger Canadian Dividend Reinvestment Plans here. Note that the lists are not identical, no doubt because of timing and thoroughness of updates, so again, check with your broker on a particular company.
There are apparently over 1300 securities in the United States with DRIP programs - see the Directinvesting.com search page. Once again, Canadian brokers differ in what they offer regarding DRIPs for US holdings.
How to Set Up the DRIP
Simply phone up your broker and go through the accounts and shares you want on DRIP.
Stingy Investor's Intro
Robert Gibb's DRIPs 101: DRIP Classifications on the
DRIP Investing Resource Center - Articles, Forum, Tools, Recommended Books, Links
Financial Webring discussion thread on DRIPs/SIPs/Synthetic DRIPs
Normally, a drip is cause for a headache at home, as leaking taps and pipes cause damage and annoyance. Not so with the uppercase acronym DRIP, whose slow and persistent operation can build the wealth in a portfolio while saving effort and cost.