I have read that re-invested dividends lower your taxes by increasing your average cost of the security so that when you sell your security, the difference between the sales price minus the book value (which includes re-invested dividends), becomes less compared to if you didn't re-invest your dividends. i.e. it reduces the capital gains.
So, just to confirm, if you don't re-invest your dividends, are you losing out on this potential to minimize your capital gains because the dividends are paid out in cash and then you just get taxed on it at the end of the tax year and when you sell your investment, you potentially will have a larger difference between the sale price and book value (assuming your security increased in value), and thus pay a higher capital gains tax.
I'm interested in Ontario, Canada tax jurisdiction for 2014.