Jim purchased one share of X42 Utility Company stock for $100. He received a dividend of $5. It was reported to him on Form 1099-DIV, included in Box 3: Nondividend distributions. Which of the following statements is CORRECT?

The dividend is not taxable as dividend income, and the basis of his stock is not $105. The dividend is not taxable; however, it will be reinvested and his basis in his stock is now $105. The dividend is not taxable as dividend income; however, it is reported as capital gain. The dividend is not taxable as dividend income, and the basis of his stock is now $95.