The S&P, which models a portfolio of 500 large-cap stocks weighted by market cap, is adjusted for splits and dividends. Splits effect neither the index value nor the weights, and dividends are implicitly assumed to go back into the portfolio, altering the weights but not the cash value. So what the S&P tracks is the performance of this portfolio, with cash dividends immediately reinvested. In other words, the returns calculated include dividends.
The S&P index is a damn good measure of market performance, since, although only 500 stocks are included, it comprises about 80% of US equities by market cap. (Wiltshire 5k is theoretically better, but the practical difficulties in index arbitrage on 5000 stocks, many illiquid, make S&P futures more popular.) The Dow, on the other hand, is a terrible index. It's not weighted for market caps, which means that if a Dow company splits its shares, its weight in the index declines, for no good reason.
I think you're mistaken in believing that the S&P 500 Index includes the value of reinvested dividends. The number
you're describing is a separate one called the "total return."
