For dividend reinvestment to be enabled, does it depend on both the company *and* the broker? Says here on the IRS publication page 21 that regardless of whether you receive cash or shares, it's taxable. The dividends section starts on page 19.

Dividends Used To Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date

irs.gov/pu...50.pdf

Jester,

One of the great things about being your friend is that often you have obscure IRS information in your head, and barring that, can find it, quote chapter and verse, and interpret it without going blind. The downside is that you're almost always correct, and from what you quoted, I don't see a way around that tax hit on dividends, even if the company has a DRIP program. And it is true to IRS dogma - heads I win, tails you lose. Very, very few cases I can recall where the investor benefits - such as the 15% (now 20% - thank you, Obama) tax on LT cap gains. I will try to check with another brokerage than my present one, if somehow by chance the brokerage makes a difference on taxability. But the point is probably moot. I'd love to hear from lt cap about his experience, since he was the one to speak about the idea.

Come to think of it, when I spoke with my regular brokerage yesterday, they were somewhat foggy on how such dividends would be treated. Ought to put you on the payroll.