At what price are dividends re-invested?
Keep in mind the ex-dividend date is different from the payable date (the day the dividend is paid). That means the market price will already have adjusted lower due to the dividend. Short answer: you get the lower price when reinvesting. So here's Vanguard's policy, it should be similar to most brokers: When reinvesting dividends, Vanguard Brokerage Services combines the   cash distributions from the accounts of all clients who have requested   reinvestment in the same security, and then uses that combined total   to purchase additional shares of the security in the open market.   Vanguard Brokerage will attempt to purchase the reinvestment shares by   entering a market order at the market opening on the payable date. The   new shares are divided proportionately among the clients' accounts, in   whole and fractional shares rounded to three decimal places. If the   total purchase can't be completed in one trade, clients will receive   shares purchased at the weighted average price paid by Vanguard   Brokerage Services. "If a stock is trading for $11 per share just before a $1 per share dividend is declared, then the share price drops to $10 per share immediately following the declaration. If you owned 100 shares (valued at $1100) before the dividend was declared, then you still own 100 shares (now valued at $1000). Generally, if the dividend is paid today, only the owners of shares as of yesterday evening (or the day before maybe) get paid the dividend. If you bought those 100 shares only this morning, the dividend gets paid to the seller (who owned the stock until yesterday evening), not to you. You just ""bought a dividend:"" paying $1100 for 100 shares that are worth only $1000 at the end of the day, whereas if you had just been a little less eager to purchase right now, you could have bought those 100 shares for only $1000. But, looking at the bright side, if you bought the shares earlier than yesterday, you get paid the dividend.  So, assuming that you bought the shares in timely fashion, your holdings just lost value and are worth only $1000.  What you do have is the promise that in a couple of days time, you will be paid $100 as the dividend, thus restoring the asset value back to what it was earlier.  Now, if you had asked your broker to re-invest the dividend back into the same stock, then, assuming that the stock price did not change in the interim due to normal market fluctuations, you would get another 10 shares for that $100 dividend making the value of your investment $1100 again (110 shares at $10 each), exactly what it was before the dividend was paid. If you didn't choose to reinvest the dividend, you would still have the 100 shares (worth $1000) plus $100 cash. So, regardless of what other investors choose to do, your asset value does not change as a result of the dividend.  What does change is your net worth because that dividend amount is taxable (regardless of whether you chose to reinvest or not) and so your (tax) liability just increased."
/ in relative to the Tesla's performance, and current inflation.  They can split and reverse split at anytime the board decides without any regard to inflation or performance.   OP points to Tesla at 350- he doesn't point to PE. It makes no differences what the price of one share is. If they split 10 for 1 it would be 35- but what difference does that make- the PE remains the same. OP does not understand value- only price. Dividends are actually a very stable portion of equity returns, the Great recession and Great Depression notwithstanding:   However, dividends, with lower variance have lower returns.  Most of the return is due to the more variant price:  So while dividends fell by 25% during the worst drop since the Great Depression, prices fell almost by 2/3. If one can accumulate enough wealth to live only off of dividend income, the price risk becomes much more manageable.  This is the ideal circumstance for retirement. "Dividends can also be automatically reinvested in your stock holding through a DRIP plan (see the wikipedia link for further details, wiki_DRIP). Rather than receiving the dividend money, you ""buy"" additional stock shares your with dividend money. The value in the DRIP strategy is twofold. 1) your number of shares increases without paying transaction fees, 2) you increase the value of your holding by increasing number of shares. In the end, the RIO can be quite substantial due to the law of compounding interest (though here in the form of dividends). Talk with your broker (brokerage service provider) to enroll your dividend receiving stocks in a DRIP." Ex-Dividend Price Behavior of Common Stocks would be a study from the Federal Reserve Bank of Minneapolis and University of Minnesota if you want a source for some data. Abstract This study examines common stock prices around ex-dividend dates. Such   price data usually contain a mixture of observations - some with and   some without arbitrageurs and/or dividend capturers active. Our theory   predicts such mixing will result in a nonlinear relation between   percentage price drop and dividend yield - not the commonly assumed   linear relation. This prediction and another important prediction of   theory are supported empirically. In a variety of tests, marginal   price drop is not significantly different from the dividend amount.   Thus, over the last several decades, one-for-one marginal price drop   have been an excellent (average) rule of thumb. "I'd agree that this can seem a little unfair, but it's an unavoidable consequence of the necessary practicality of paying out dividends periodically (rather than continuously), and differential taxation of income and capital gains. To see more clearly what's going on here, consider buying stock in a company with extremely simple economics: it generates a certain, constant earnings stream equivalent to $10 per share per annum, and redistributes all of that profit as periodic dividends (let's say once annually). Assume there's no intrinsic growth, and that the firm's instrinsic value (which we'll say is $90 per share) is completely neutral to any other market factors. Under these economics, this stock price will show a ""sawtooth"" evolution, accruing from $90 to $100 over the course of a year, and resetting back down to $90 after each dividend payment. Now, if I am invested in this stock for some period of time, the fair outcome would be that I receive an appropriately time-weighted share of the $10 annual earnings per share, less my tax. If I am invested for an exact calendar year, this works as I'd expect: the stock price on any given day in the year will be the same as it was exactly one year earlier, so I'll realise zero capital gain, but I'll have collected a $10 taxed dividend along the way. On the other hand, what if I am invested for exactly half a year, spanning a dividend payment? I receive a dividend payment of $10 less tax, but I make a capital loss of -$5. Overall, pre-tax, I'm up $5 per share as expected. However, the respective tax treatment of the dividend payment (which is classed as income) and the capital gains is likely to be different. In particular, to benefit from the ""negative"" taxation of the capital loss I need to have some positive capital gain elsewhere to offset it - if I can't do that, I'm much worse off compared to half the full-year return. Further, even if I can offset against a gain elsewhere the effective taxation rates are likely to be different - but note that this could work for or against me (if my capital gains rate is greater than my income tax rate I'd actually benefit). And if I'm invested for half a year, but not spanning a dividend, I make $5 of pure capital gains, and realise a different effective taxation rate again. In an ideal world I'd agree that the effective taxation rate wouldn't depend on the exact timing of my transactions like this, but in reality it's unavoidable in the interests of practicality. And so long as the rules are clear, I wouldn't say it's unfair per se, it just adds a bit of complexity." .INX (the S&P 500 index itself) does not include reinvested dividens.  You can figure total return by going to Yahoo finance, historical data. Choose the start year, and end year. You should find that data for SPY (going back to 1993) will show an adjusted close, and takes dividends into account. This isn't perfect as SPY has a .09% expense ratio, but it's better than just the S&P index. One of the more popular Dow ETF is DIA, this will let you similarly track the Dow while accounting for dividends. "Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would   have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return  where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend.  They are included in the final value and the return is termed ""total return"".  If the dividends are taken in cash, the return based on the final value is ""net return"". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel" Ok so I used Excel solver for this but it's on the right track.  Latest price = $77.19  Latest div = $1.50  3-yr div growth = 28%  g = ???  rs = 14%  So we'll grow out the dividend 3 years @ 28%, and then capitalize them into perpetuity using a cap rate of [rs - g], and take the NPV using the rs of 14%. We can set it up and then solve g assuming an NPV of the current share price of $77.19.  So it should be:  NPV = $77.19 =   [$1.50 / (1+0.14)^0 ] +  [$1.50 x (1+0.28)^1 / (1+0.14)^1 ] +  ... +  [$1.50 x (1+0.28)^3 / (1+0.14)^3 ] +  [$1.50 x (1+0.28)^3 x (1+g) / (0.14-g) / (1+0.14)^4 ]  Which gives an implied g of a little under 9%. Let me know if this makes sense, and definitely check the work... Numerous studies have actually shown that companies who pay dividends are much more reckless financially with returning capital to shareholders because they want to save face and maintain/grow the dividend.  Buybacks are much more flexible and probably lead to better capital allocation decisions, in my opinion. A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period.  Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period.  To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%.  The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits. "In the case of mutual funds, Net Asset Value (NAV) is the price used to buy and sell shares. NAV is just the value of the underlying assets (which are in turn valued by their underlying holdings and future earnings). So if a fund hands out a billion dollars, it stands to reason their NAV*shares (market cap?) is a billion dollars less. Shareholder's net worth is equal in either scenario, but after the dividend is paid they are more liquid. For people who need investment income to live on, dividends are a cheap way to hold stocks and get regular payments, versus having to sell part of your portfolio every month.  But for people who want to hold their investment in the market for a long long time, dividends only increase the rate at which you have to buy. For mutual funds this isn't a problem: you buy the funds and tell them to reinvest for free. So because of that, it's a prohibited practice to ""sell"" dividends to clients." There is a basis for that if you consider the power of compounding. So, the sooner you re-invest the dividends the sooner the time will give you results (through compounding). There is also the case of the commissions, if they are paid with a percentage of the amount invested they automatically gain more from you. Just my 2cents, though the other answers are probably more complete. Edit: I a in the United States, seek advice from someone who is also in Australia.  I am getting about 5.5% per year by investing in a fund (ticker:PGF) that, in turn, buys preferred stock in banks. Preferred stock acts a bit like a bond and a bit like a stock.  The price is very stable. However, a bank account is FDIC insured (in the USA) and an investment is not. I use the Reinvestment program at Scottrade so that the monthly dividends are automatically reinvested with no commission. However I do not know if this is available outside of the United States.  Investing yealds greater returns but exposes you to greater risk. You have to know your risk tolerance. Various types of corporate actions will precipitate a price adjustment.  In the case of dividends, the cash that will be paid out as a dividend to share holders forms part of a company's equity.  Once the company pays a dividend, that cash is no longer part of the company's equity and the share price is adjusted accordingly. For example, if Apple is trading at $101 per share at the close of business on the day prior to going ex-dividend, and a dividend of $1 per share has been declared, then the closing price will be adjusted by $1 to give a closing quote of $100. Although the dividend is not paid out until the dividend pay date, the share price is adjusted at the close of business on the day prior to the ex-dividend date since any new purchases on or after the ex-dividend date are not entitled to receive the dividend distribution, so in effect new purchases are buying on the basis of a reduced equity.   It will be the exchange providing the quote that performs the price adjustment, not Google or Yahoo.  The exchange will perform the adjustment at the close prior to each ex-dividend date, so when you are looking at historical data you are looking at price data that includes each adjustment. Yes, as long as you write a call against your stock with a strike price greater than or equal to the previous day's closing price, with 30 or more days till experation there will be no effect on the holding period of your stock. Like you mentioned, unqualified covered calls suspend the holding period of your stock.  For example you sell a deep in the money call (sometimes called the last write) on a stock you have held for 5 years, the covered call is classified as unqualified, the holding period is suspened and the gain or loss on the stock will be treated as short-term. Selling out of the money calls or trading in an IRA account keeps things simple. The details below have been summarized from an article I found at investorsguide.com.  The article also talks about the implications of rolling a call forward and tax situations where it may be advantageous to write unqualified covered calls (basically when you have a large deferred long term loss). http://www.investorguide.com/article/12618/qualified-covered-calls-special-rules-wo/ Two criterion must be met for a covered call to be considered a qualified covered call (QCC). 1) days to expiration must be greater than 30 2) strike price must be greater than or equal to the first available in the money strike price below the previous day's closing price for a particular stock.  Additionally, if the previous day's closing price is $25 or less, the strike price of the call being sold must be greater than 85% of yesterday's closing price. 2a) If the previous day's closing price is greater than 60.01 and less than or equal to $150, days to experation is between 60-90, as long as the strike price of the call is greater than 85% of the previous days close and less than 10 points in the money, you can write a covered call two strikes in the money 2c) If the previous day's closing price is greater than $150 and days till expiration is greater than 90, you can write a covered call two strikes in the money.