If it is truly a dividend and not a paper capital gain, then yes you do. Think of it this way: you could take the dividend in cash and invest it in something else. It's pretty clear the dividend would be taxable in that case, and it still is with dividends that are reinvested.By the way, you'll want to take special care about the records you keep, in order to figure out your cost basis when you sell eventually. The pain of having to do this is something the people who advocate DRIPs seldom mention.
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