What is a Dividend Reinvestment Plan in MICs?

When it comes to growing wealth through Canadian mortgage investments, few tools are as powerful as a Dividend Reinvestment Plan (DRIP). For investors in a Mortgage Investment Corporation (MIC), understanding how DRIPs work, and how they harness compound interest, can be the key to long-term financial success.

In this blog, we’ll break down the dividend reinvestment plan meaning, explain what are dividend reinvestment plans, compare simple interest vs compound interest, explore how MICs offer unique advantages, and show you how DRIPs can supercharge your returns.

Understanding the Power of Compound Interest

Compound interest is the process of earning interest not only on your original investment but also on the accumulated interest over time. This creates a snowball effect: each period, your earnings grow larger, because you’re generating returns on a bigger base.

Contrast this with simple interest, where you only earn on the original principal.

This is why Einstein famously called compound interest “the eighth wonder of the world.”

Try a compound interest calculator to see how your investments could grow exponentially over time.

Dividend Reinvestment Plan Meaning

A Dividend Reinvestment Plan (DRIP) allows investors to automatically reinvest their cash dividends into additional shares of the investment, rather than receiving payouts in cash.

In short: instead of taking dividends out and spending them, you reinvest them so they generate more income.

What Are Dividend Reinvestment Plans in MICs?

When applied to a Mortgage Investment Corporation (MIC), a DRIP becomes an especially powerful strategy.

A private mortgage investment fund is a Canadian investment vehicle that pools investor funds to lend private mortgages. Investors earn MIC dividends, paid out monthly or quarterly, based on the interest collected from borrowers.

By enrolling in a MIC dividend reinvestment plan, you can:

Over time, this accelerates wealth accumulation, especially when compared to simply taking dividend payouts in cash.

MIC Dividend History and Stability

Many investors look at MIC dividend history as a way to measure stability. Unlike common stock dividends that fluctuate with market conditions, MIC dividends are tied to the steady flow of mortgage interest payments.

Because MICs typically invest in short-term, secured mortgages, the dividend yield is relatively consistent. This makes MICs attractive for investors seeking steady income and compounding opportunities.

Best Dividend Reinvestment Plans: Why MICs Stand Out

While you can find DRIPs in many sectors (such as bank stocks or utility companies), MICs offer a few unique advantages that make their dividend reinvestment plans especially attractive:

1. Monthly Compounding: MIC dividends are often paid monthly, which means you can reinvest more frequently. More compounding periods = faster growth.
2. Zero Management Fees: For Hosper’s MICs, for example, there are 0.00% management fees. No investment management fees means every dollar stays working for you, increasing your compound growth.
3. TFSA and RRSP Eligible: MICs qualify as RRSP investment options and can be held in a TFSA, making them tax-efficient.

Do Reinvested Dividends Count as TFSA Contributions?

This is a common question for Canadian investors. The answer is no: reinvested dividends inside a TFSA do not count as new contributions.

Here’s why:

This makes DRIPs in MICs an especially powerful TFSA strategy.

Compound vs Simple Interest in Mortgage Investments

In private mortgage investing, returns are often calculated with simple interest when investors take monthly payouts. You receive a steady stream of income, but your principal doesn’t grow.

With a dividend reinvestment plan, those same dividends are compounded. Instead of simple interest returns, you unlock compound growth. Over years or decades, the gap between the two approaches becomes enormous.

How to Invest in Private Mortgages through MICs

Direct mortgage investing can have its separate nuances with benefits of its own. That’s why it is important for investors to consider both mortgage investment corporations and direct mortgage investing before they invest in private mortgages.

Benefits of MICs vs Direct Mortgage Investing:

For Canadians interested in mortgage backed securities or Canadian mortgage investments, MICs provide a simple and regulated entry point.

Dividend Yield in MICs

One of the biggest attractions of mortgage investment corporations is their dividend yield. Hosper’s targeted dividend yields range from 6.5–9.5% depending on the fund, but frequently yield above target dividends.

With a DRIP, that yield doesn’t just provide income, it compounds. Over 10+ years, reinvested dividends can double or even triple your original investment.

Management Fee Impact on Compounding

Even small management fees can erode the benefits of compounding. For example:

Hosper stands out with zero investment management fees, ensuring every dollar of growth remains yours.

Canadian Mortgage Investments: RRSP and TFSA Strategies

MICs are RRSP investment options and TFSA eligible. Here’s why that matters:

This makes MICs one of the most attractive options for Canadians seeking steady income, compounded growth, and tax efficiency.

How Compound Interest Supercharges DRIPs

Let’s look at a 20-year scenario:

After 20 years, Investor A has received $39,000 in cash payments. Investor B, however, through compounding, Investor B’s investment would have gone up to $109,693.42.

This is why the best dividend reinvestment plans are those tied to high-yielding, fee-free structures like Hosper’s MICs.

Tradeoffs to Consider with DRIPs in MICs

While the advantages of a dividend reinvestment plan in a mortgage investment corporation (MIC) are clear, investors should also be aware of the tradeoffs. A balanced view helps ensure you align the strategy with your long-term goals.

Liquidity Limitations

Unlike publicly traded stocks, MIC shares aren’t always instantly redeemable. Redemption windows may vary, which means capital is not as liquid as traditional equities. If you need immediate access to cash, reinvesting dividends could limit flexibility. Hosper provides complete transparency to investors on liquidity and redemption.

Dividend Variability

Although MIC dividend history tends to be stable, yields are not guaranteed. Economic conditions, borrower defaults, or changes in interest rates may affect the dividend yield. Reinvested dividends compound growth when yields are strong but may slow during weaker years. Fortunately, Hosper’s mortgage investment corporations have never missed a payment, and have historically never missed targets. Further, Hosper’s Paragon Process ensures that investor capital is protected.

Tax Considerations

Outside of registered accounts like RRSPs and TFSAs, MIC dividends are taxed as interest income. This could reduce after-tax returns, especially for higher-income investors. While reinvested dividends count as TFSA contributions, the key is to maximize registered accounts for tax efficiency.

Management and Market Risks

While Hosper stands out with 0.00% investment management fees, some MICs charge management fees that can erode compounding power. Additionally, because MICs are tied to the real estate market, downturns in property values or borrower defaults could impact performance.

By understanding these tradeoffs, investors can make informed decisions. DRIPs in MICs remain one of the most compelling ways to leverage compound interest—but only when matched with your liquidity needs, tax planning, and risk tolerance.

Key Takeaways

Conclusion: The Best Time to Start Compounding is Now

Whether you’re considering private mortgage investing, looking at Canadian mortgage investments, or comparing simple interest vs compound interest, the lesson is clear:

At Hosper MIC, with 0.00% management fees, a strong MIC dividend history, and TFSA/RRSP eligibility, you have the opportunity to grow wealth steadily and securely.