Stock and Re-Investment

I know the below formulas to calculate Gains/Losses IF you have auto-reinvest in mutual funds.

Gain or Loss = Sale Price - Cost Basis
Cost Basis = {Original Cost Purchase + (Sum of all Capital Gains + Dividends)}

How about individual stocks? Do the above formulas still apply?

For example. I have a stock that pays $100 per quarter in dividends. If I use that $100 and buy more shares of the same stock, how does this affect my cost basis?

Answer:- 

Correct. You need to determine the initial amount of money invested. For example, if you invested $5K for Stock XYZ, the cost basis is $5K. Cost basis can also be measured per share. If you bought 100 shares of Stock XYZ for $5K, then the cost basis per share is $50. So, remember that dividends are the portion of the profits a company pays out to you , as an investor (shareholder). Theoretically, the share price will drop by the amount of the dividend upon payment since that amount of cash has just been removed from the balance sheet. Dividends then are investment returns in the form of a cash payment. In contrast, when a company retains its earnings and foregoes paying dividends, the investment returns will presumably be in the form of an increasing share price (at least that's what its investors are counting on). Dividend reinvesting does affect the cost basis of your holdings, but it shouldn't be seen as a kind of partial refund of your original purchase. Read More...