What Are Fractional Shares?

Fractional shares are less than full shares of a stock. In recent years, many online brokers have been.

Prior to brokers offering fractional shares, you would need to invest in full shares, some of which can cost hundreds or even thousands of dollars. With fractional shares, you can decide a dollar amount you would like to invest (many brokers require a minimum investment of $5 per fractional share), instead of buying a full share.

Fractional Share Investment Example

Apple (AAPL) closing stock price on March 1, 2023 was $145.31, to buy a full share, you would need to invest in multiples of $145.31 to buy 1, 2, 3 shares, etc.

With fractional shares, you could invest $7 in AAPL and receive 0. shares of AAPL.

Do Fractional Shares Pay Dividends?

Yes, fractional shares pay dividends, you'll receive the dividend payment based on the percent of shares you own. If you own 0.20 shares and the dividend was $0.25, you would receive 20% of the dividend payment, $0.05.

Pros of Fractional Shares

• Start investing with smaller amounts, with many online brokers you can start investing in fractional shares for as little as $5 per company
• Easily invest in stocks with high share prices with small amounts
• Easier diversification at a low cost. If you wanted to own AAPL ($145.31), AMZN ($92.17) & TSLA ($202.77), you would need to invest a minimum of $440.25, investing 1 share in each. Your portfolio would be AAPL (33%), AMZN (21%) and TSLA (46%). With fractional shares you could invest $5 in each ($15 total) and have a portfolio of 1/3 in each stock or any combination of the 3 stocks.

Cons of Fractional Shares

• Less stock & ETF investment options, depending on the brokerage, not all stocks and ETFs will be available as fractional shares. With Charles Schwab for example, you can only invest in S&P 500 stocks, not in other stocks or ETFs.

Online Brokerages Offering Fractional Shares

1. Robinhood
2. SoFi Invest
3. Webull
4. Public
5. M1Finance
6. Charles Schwab (only S&P 500 stocks)

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