How do dividend reinvestment purchases work?
Many brokers administer their own dividend reinvestment plans.  In this case, on dividend payment date, they automatically buy from the market on behalf of their reinvestment customers, and they administer all fractional shares across all customers.  All of your shares are in the broker's street name anyway, the fractional share is simply in their account system.   The process is well documented for several common online brokers; so any specific questions you may have about differences in policies or implementation should be directed to your broker:  https://us.etrade.com/e/t/estation/help?id=1301060000 https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA208.pdf As far as I know, it has the same price, and effects on the market, as any other transaction... In order: A seller of the stock (duh!). You don't know who or why this stock was sold. It could be any reason, and is of no concern of yours. It doesn't matter. Investors (pension funds, hedge funds, individual investors, employees, management) sell stock for many reasons: need cash, litigation, differing objectives, sector rotation, etc. To you, this does not matter. Yes, it does affect stock market prices: If you were not willing to buy that amount of shares, and there were no other buyers at that price, the seller would likely choose to lower the price offered. By your purchase, you are supporting the price. The Brokerage firm will purchase shares for the dividend paid in a omnibus account for the security of the issuer and then they will distribute fractional shares among all their clients that chose Div Reinvest.  They will only have to buy 1 extra share to account for the fractional portion of what they allocate.  The structure of the market does not permit trading of fractional shares. There is generally not any impact to the market place for Div Reinvest with the exception of certain securities that pay large dividends that are not liquid. sometimes this occurs in  preferred securities where a large amount of Div reinvestment could create a large market order that has market impact.  Most brokers place market orders for the opening on the day following the payment of the dividend. When you sell the fractional portion same process as full shares are sold into the market and the fractional if traded between you and the brokers omnibus account.  if it creates a full share for the broker (omnibus has .6 shares and you sell him .5 they would likely flip that out to the street with the full share portion of your order. This would not have impact to outstanding shares and all cost are operational and with the broker handling the Div reinvestment service.
When I play Railroad Tycoon III, I often send my company deep into debt to get cash on hand to buy back shares, effectively increasing my ownership of the company as an absolute percentage. Then I issue massive dividends until my company goes bankrupt, and start a new company. It's a way to shuttle money borrowed against a company's assets into my personal bank account at no risk to me. In the MSFT case, maybe they think there will be inflation and this is a hedge against holding so many dollars in cash already. If they can borrow a couple billion in 2010 dollars and pay it back in 2015 dollars, they're probably going to end up ahead if all they do is buy back shares. Paying dividends with the money seems stupid vs. buying back shares - they're just driving up income taxes for investors. No. Investors purchase ETFs' as they would any other stock, own it under the same circumstances as an equity investment, collecting distributions instead of dividends or interest. The ETF takes care of the internal operations (bond maturities and turnover, accrued interest, payment dates, etc.). Instead of giving part of their profits back as dividends, management puts it back into the company so the company can grow and produce higher profits. When these companies do well, there is high demand for them as in the long term higher profits equates to a higher share price. So if a company invests in itself to grow its profits higher and higher, one of the main reasons investors will buy the shares, is in the expectation of future capital gains. In fact just because a company pays a dividend, would you still buy it if the share price kept decreasing year after year? Lets put it this way: Company A makes record profits year after year, continually keeps beating market expectations, its share price keeps going up, but it pays no dividend instead reinvests its profits to continually grow the business. Company B pays a dividend instead of reinvesting to grow the business, it has been surprising the market on the downside for a few years now, it has had some profit warnings lately and its share price has consistently been dropping for over a year. Which company would you be interested in buying out of the two? I know I would be interested in buying Company A, and I would definitely stay away from Company B. Company A may or may not pay dividends in the future, but if Company B continues on this path it will soon run out of money to pay dividends. Most market gains are made through capital gains rather than dividends, and most people invest in the hope the shares they buy go up in price over time. Dividends can be one attractant to investors but they are not the only one. Some brokerages will allow you to enroll your account in a dividend reinvestment plan -- TD Ameritrade and I think Schwab for example. The way the plan works is that they would take your $4 and give you whatever fractional share of the ETF it is worth on the payment date. There are no fees associated with this purchase (or at least there are in the programs I've seen -- if you have to pay a fee, look for another brokerage). You may also be able to enroll specific securities instead of the entire account into dividend reinvestment. Call your brokerage to see what they offer. The trend in ETFs is total return: where the ETF automatically reinvests dividends.  This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing.  In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth. "This is a great question.  I've participated in a deal like that as an employee, and I also know of friends and family who have been involved during a buyout.  In short:  The updated part of your question is correct: There is no single typical treatment.  What happens to unvested restricted stock units (RSUs), unvested employee stock options, etc. varies from case to case. Furthermore, what exactly will happen in your case ought to have been described in the grant documentation which you (hopefully) received when you were issued restricted stock in the first place. Anyway, here are the two cases I've seen happen before: Immediate vesting of all units.  Immediate vesting is often the case with RSUs or options that are granted to executives or key employees.  The grant documentation usually details the cases that will have immediate vesting.  One of the cases is usually a Change in/of Control (CIC or COC) provision, triggered in a buyout.  Other immediate vesting cases may be when the key employee is terminated without cause, or dies.  The terms vary, and are often negotiated by shrewd key employees. Conversion of the units to a new schedule.  If anything is more ""typical"" of regular employee-level grants, I think this one would be.  Generally, such RSU or option grants will be converted, at the deal price, to a new schedule with identical dates and vesting percentages, but a new number of units and dollar amount or strike price, usually so the end result would have been the same as before the deal. I'm also curious if anybody else has been through a buyout, or knows anybody who has been through a buyout, and how they were treated." If you are using the money to invest in a property (even abroad) then you can claim tax exemption. while some people will tell you that the reinvestment should be in India only, it have been ruled that the property can be purchased abroad too.. Suppose the price didn't drop on the ex-dividend date. Then people wanting to make a quick return on their money would buy shares the day before, collect the dividend, and then sell them on the ex-dividend date. But all those people trying to buy on the day before would push the price up, and they would push the price down trying to sell on the date. It appears from your description that the 401k account has the automatic dividend reinvestment policy, and that the end result is exactly the same as the external account with the same policy. I.e.: no difference, the dividend affected the 401k account in exactly the same way it affected the external account. The only thing is that for external account you can take the dividend distribution, while for 401k you cannot - it is reinvested automatically. Were you expecting something else? I will never understand the logic behind this. If you buyback shares instead of funding pension liabilities... those liabilities are still there and any serious investor will factor that into the companies stock price.   I guess it's just easier to be a consistent dividend grower and cater to that audience if your outstanding shares decrease. For bonds bought at par (the face value of the bond, like buying a CD for $1000) the payment it makes is the same as yield. You pay $1000 and get say, $40 per year or 4%. If you buy it for more or less than that $1000, say $900, there's some math (not for me, I use a finance calculator) to tell you your return taking the growth to maturity into account, i.e. the extra $100 you get when you get the full $1000 back. Obviously, for bonds, you care about whether the comp[any or municipality will pay you back at all, and then you care about how much you'll make when then do. In that order. For stocks, the picture is abit different as some companies give no dividend but reinvest all profits, think Berkshire Hathaway. On the other hand, many people believe that the dividend is important, and choose to buy stocks that start with a nice yield, a $30 stock with a $1/yr dividend is 3.3% yield. Sounds like not much, but over time you expect the company to grow, increase in value and increase its dividend. 10 years hence you may have a $40 stock and the dividend has risen to $1.33. Now it's 4.4% of the original investment, and you sit on that gain as well. Good question, here are some possible answers: Its a Good Idea There is probably some validity to the statictics and having money invested, generally speaking, has proven far more valuable than having it sit in a savings account. It tends to reinforce strength Suppose you own two stocks, one that is a great performer, and one that isn't.  Generally speaking the high performer will pay out more, and if you reinvest more into that stock, you will be wealthier if you contributed equally to both stocks. You might forget People tend to forget to do things that are not in the forefront, and reinvestment is one of those things that slip people's mind.  One of the wealth building tools that people universally recommend is automation.  Reinvesting is a way to automate one aspect of one's financial life.   You might spend it on something else If you put the dividends into your checking account, there is a non-zero chance that it might get put towards something else.  Better to have it out of sight and mind and invested. They make money Generally speaking, the more money you have in a brokerage account, the more the brokerage makes.   So it is good for them, as well as yourself. While there is some attraction to being able to see a balance that is the result of dividend investments, its just far better to have them be poured right back into whatever investment seem appropriate. I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return.  The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time.  TR1933 Yes, 1933 is my year of birth and still re investing divis! Yes, you often can buy stocks directly from the company at little or no transaction cost.  Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP).  With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name.  This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder.  This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name.  After that, you can register with the DRIP and purchase additional shares directly from the company.  If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did.  However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started. OMG. A recession is coming.  Wait...hasn't that been a true statement since forever? No shit a recession is coming. That's like saying a thunderstorm is coming. This is a natural part of economics. Recessions are a necessary part of growth, almost like growing pains. Now the real question is 'when will the recession happen.' However nobody truly knows that, so it's better to spend your efforts making sure you're prepared for when a recession occurs as opposed to worrying about when that will happen.