Calculating basis for securities, for tax purposes, is difficult when you reinvest dividends. So it's a feature for brokerage statements to show the total number of shares owned and one's basis in those shares. They're doing the hard math for you.

By reporting total basis, including reinvested dividends, your brokerage is underreporting your real return on investment. Because, the basis in shares purchased via dividend reinvestments is part of one's total return on the shares owned, what's a cost for tax purposes should be viewed as a gain when evaluating your portfolio.

Why does this matter? Take my ownership of BP.

I bought $950 of BP for several reasons, the critical one for our purposes being dividends. After owning the stock for a few years, my brokerage shows the holding like this:

If I were using my brokerage's summary page or statements to judge how this holding was doing, I'd think: not very good. A few years of no returns probably isn't a good use of money (absent a host of other things not on that screen).

But: dividends.

I track real return with a Google Spreadsheet. I enter my original outlay of cash for the security, and then update my total shares owned cell to account for dividend reinvestment.

Check out BP in my spreadsheet:

That changes things. BP has been paying me to own it (thanks!).

h/t to Joshua Kennon for this post.