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.
The sale of shares on vesting convolutes matters. In a way similar to how reinvested dividends are taxed but the newly purchased fund shares' basis has to be increased, you need to be sure to have the correct per share cost basis. It's easy to confuse the total RSU purchase with the correct numbers, only what remained.  The vesting stock is a taxable event, ordinary income.  You then own the stock at that cost basis. A sale after that is long or short term and the profit is the to extent it exceeds that basis.  The fact that you got these shares in 2013 means you should have paid the tax then. And this is part two of the process. Of course the partial sale means a bit of math to calculate the basis of what remained. A DRIP plan with the ETF does just that. It provides cash (the dividends you are paid) back to the fund manager who will accumulate all such reinvested dividends and proportionally buy more shares of stock in the ETF. Most ETFs will not do this without your approval, as the dividends are taxed to you (you must include them as income for that year if this is in a taxable account) and therefore you should have the say on where the dividends go. Prices are adjusted for return and not payout.  So if you take the ratio of the close price and the adjusted close price, it should remain constant. The idea behind a total return (back-)adjustment is to give you a feeling how much money you would have needed back then to reach the price today under the premise that all distributions (dividends, spin-offs, etc.) are reinvested instantly and that reinvestment doesn't cost anything. "From Wikipedia - Stock: The stock (also capital stock) of a corporation constitutes the equity   stake of its owners. It represents the residual assets of the company   that would be due to stockholders after discharge of all senior claims   such as secured and unsecured debt. Stockholders' equity cannot be   withdrawn from the company in a way that is intended to be detrimental   to the company's creditors Wikipedia - Dividend: A dividend is a payment made by a corporation to its shareholders,   usually as a distribution of profits. When a corporation earns a   profit or surplus, it can re-invest it in the business (called   retained earnings), and pay a fraction of this reinvestment as a   dividend to shareholders. Distribution to shareholders can be in cash   (usually a deposit into a bank account) or, if the corporation has a   dividend reinvestment plan, the amount can be paid by the issue of   further shares or share repurchase. Wikipedia - Bond: In finance, a bond is an instrument of indebtedness of the bond issuer   to the holders. It is a debt security, under which the issuer owes the   holders a debt and, depending on the terms of the bond, is obliged to   pay them interest (the coupon) and/or to repay the principal at a   later date, termed the maturity date. Interest is usually payable   at fixed intervals (semiannual, annual, sometimes monthly). Very often   the bond is negotiable, i.e. the ownership of the instrument can be   transferred in the secondary market. This means that once the transfer   agents at the bank medallion stamp the bond, it is highly liquid on   the second market. Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under ""Employee Stock Purchase Plans"" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note. This is without getting into Convertible Bond that also exists: In finance, a convertible bond or convertible note or convertible debt   (or a convertible debenture if it has a maturity of greater than 10   years) is a type of bond that the holder can convert into a specified   number of shares of common stock in the issuing company or cash of   equal value. It is a hybrid security with debt- and equity-like   features.  It originated in the mid-19th century, and was used by   early speculators such as Jacob Little and Daniel Drew to counter   market cornering. Convertible bonds are most often issued by   companies with a low credit rating and high growth potential." Reading the plan documentation, yes, that is what it means.  Each purchase by bank debit, whether one-time or automatic, costs $2 plus $0.06 per share; so if you invested $50, you would get slightly less than $48 in stock as a result (depending on the per-share price). Schedule of Fees Purchases – A one-time $15.00 enrollment fee to establish a new     account for a non-shareholder will be deducted from the     purchase amount. – Dividend reinvestment: The Hershey Company pays the     transaction fee and per share* fee on your behalf. – Each optional cash purchase by one-time online bank     debit will entail a transaction fee of $2.00 plus $0.06 per     share* purchased. – Each optional cash purchase by check will entail a     transaction fee of $5.00 plus $0.06 per share* purchased. – If funds are automatically deducted from your checking or     savings account, the transaction fee is $2.00 plus $0.06     per share* purchased. Funds will be withdrawn on the     10th of each month, or the preceding business day if the     10th is not a business day. – Fees will be deducted from the purchase amount. – Returned check and rejected ACH debit fee is $35.00. No, they do not. Stock funds and bonds funds collect income dividends in different   ways. Stock funds collect dividends  (as well as any capital gains   that are realized) from the underlying stocks  and incorporates these   into the funds’ net asset value, or daily share price. That’s why a   stock fund’s share price drops when the fund makes a distribution –   the distribution comes out of the fund’s total net assets. With bond funds, the internal accounting is different:  Dividends   accrue daily, and are then paid out to shareholders every month or   quarter.  Bond funds collect the income from the underlying bonds and   keep it in a separate internal “bucket.”  A bond fund calculates a   daily accrual rate for the shares outstanding, and shareholders only   earn income for the days they actually hold the fund.  For example, if   you buy a bond fund two days before the fund’s month-end distribution,   you would only receive two days’ worth of income that month.  On the   other hand, if you sell a fund part-way through the month, you will   still receive a partial distribution at the end of the month,   pro-rated for the days you actually held the fund. Source  Also via bogleheads: Most Vanguard bond funds accrue interest to the share holders daily.   Here is a typical statement from a prospectus: Each Fund distributes to shareholders virtually all of its net income   (interest less expenses) as well as any net capital gains realized   from the sale of its holdings. The Fund’s income dividends accrue   daily and are distributed monthly. The term accrue used in this sense   means that the income dividends are credited to your account each day,   just like interest in a savings account that accrues daily. Since the   money set aside for your dividends is both an asset of the fund and a   liability, it does not affect the calculated net asset value. When the   fund distributes the income dividends at the end of the month, the net   asset value does not change as both the assets and liabilities   decrease by exactly the same amount. [Note that if you sell all of   your bond fund shares in the middle of the month, you will receive as   proceeds the value of your shares (calculated as number of shares   times net asset value) plus a separate distribution of the accrued   income dividends.] The benefit of a dividend reinvestment program is you, generally, don't pay transaction costs or commissions and you don't have to remember to do it.  Whether or not you may be able to eek out a little more by managing this yourself is a crapshoot and the equivalent of timing the market.   If you're so good at timing the market you shouldn't even be holding the stock, you should be buying and selling as the price fluctuates. "Generally, ETFs work on the basis that there exists a pair of values that can be taken at any moment in time: A Net Asset Value of each share in the fund and a trading market price of each share in the fund.  It may help to picture these in baskets of about 50,000 shares for the creation/redemption process. If the NAV is greater than the market price, then arbitrageurs will buy up shares at the market price and do an ""in-kind"" transaction that will be worth the NAV value that the arbitrageurs could turn around and sell for an immediate profit. If the market price is greater than the NAV, then the arbitrageurs will buy up the underlying securities that can be exchanged ""in-kind"" for shares in the fund that can then be sold on the market for an immediate profit. What is the ETF Creation/Redemption Mechanism? would be a source on this though I imagine there are others. Now, in the case of VXX, there is something to be said for how much trading is being done and what impact this can have. From a July 8, 2013 Yahoo Finance article: At big option trade in the iPath S&P 500 VIX Short-Term Futures Note   is looking for another jump in volatility.  More than 250,000 VXX options have already traded, twice its daily   average over the last month. optionMONSTER systems show that a trader   bought 13,298 August 26 calls for the ask price of $0.24 in volume   that was 6 times the strike's previous open interest, clearly   indicating new activity. Now the total returns of the ETF are a combination of changes in share price plus what happens with the distributions which could be held as cash or reinvested to purchase more shares."