All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
How to invest in fractional shares
Find out what fractional shares are, why they're useful, and how you can buy fractional shares the UK.
Sometimes, a single share in a company can set you back thousands of pounds (or dollars). Not ideal if you’re investing on a budget. That’s where fractional shares come to the rescue.
By breaking down stocks into smaller pieces, it gives you the opportunity to invest in portions of whole shares. Find out how this works, why they’re useful, and how to start investing in fractional shares.
What are fractional shares?
When you buy shares in a company, you’re buying a slice of ownership. A fractional share simply divides the ownership further. The original slice was the full “share”, but if you break down that share further, you’ll end up with fractional stock ownership.
Sometimes fractional shares are created accidentally, such as with a dividend reinvestment plan (DRIP), stock splits or mergers. Other times, the splitting is completely intentional, and done by a brokerage. This feature is quite new in the investing world and only on offer with some of the best trading apps.
What is a dividend reinvestment plan?
A dividend reinvestment plan (DRIP) is when you agree with your broker that they will reinvest the dividends you receive to buy more shares.
How to invest in fractional shares
- Find a share dealing account. You’ll need one that lets you invest in fractional shares. Take a look at our list below and read our reviews to make sure they suit your needs.
- Sign up and fund your account. You’ll need to provide some personal details and information before depositing money into your account.
- Find a fractional share. Research some of the stocks you’re interested in and find them on your chosen platform.
- Choose how much you want to invest. Typically, you type in how much you want to invest and the provider will show you how much of a share that equates to.
- Hit buy. It’s as easy as that! Keep in mind, buying fractional shares is often just for US stocks.
How much do fractional shares cost?
The cost of your slice of the company pie depends on the size of the company and the cost per share. For example, if you want to buy a 50% share of a £100 stock, this will cost you £50. But if you wanted to spend £75 on the same stock, you’d have a fractional share worth 75%.
Why buy fractional shares?
When a company or broker offers fractional shares, it’s allowing you to get access to stocks and shares that you might not usually have access to due to the cost of a single share.
If your broker allows you to purchase fractional shares, it doesn’t really matter how how the price of a single share is. Fun fact – Berkshire Hathaway (BRK.A), Warren Buffett’s investing company, has the most expensive share price in the world. At the time of writing, a single Berkshire Hathaway Class A shares costs over $600,000 (roughly £475,000)!
Fractional shares also allow investors with limited funds to start investing. One of the best ways to manage risk in a portfolio is to diversify. A difficult task if you can only afford one share. Buying fractional shares allows you to split your funds across a portfolio of companies on a smaller scale.
Where to buy fractional shares
You can buy fractional shares on certain investing platforms – we’ve listed some major ones below. Some platforms also allow you to invest in fractional shares through exchange traded funds (ETFs).
Platforms that offer fractional shares include:
Platforms that offer fractional shares through ETFs:
Can you buy fractional shares in UK companies?
Yes, you can. However, UK fractional shares aren’t very common. The only 3 platforms offering the option to invest in UK fractional shares from LSE-listed companies are Wombat and Trading 212 and XTB.
The upside is that this allows you to invest in companies like Greggs with the same amount you’d spend on a sausage roll.
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Dividend reinvestment
Dividend reinvestment plans (DRIPs) allow you to reinvest your dividend payments into more shares, which slowly increases your equity. If you don’t receive enough in dividends to purchase a full share, then you’ll get a fractional share. If you hold the shares over a long period and receive several fractional shares in this way, then they’ll be added up to make full shares, like loose change.
Stock splits
There are several different terms for stock splits, including “scrip issues”, “bonus issues”, “capitalisation issues” or “free issues”. No matter what they’re called, they do the same thing.
Sometimes companies choose to split their shares up to create more and make them more liquid. The split doesn’t add any additional value to what there was before. There isn’t a set way to split the stocks, sometimes it might be 2 for every 1 the shareholder owns, another time it may be 3 for every 2 the shareholder owns.
In the latter example, if a shareholder owns an odd number of shares, then the remaining share will turn into 1.5 shares, leaving the shareholder with a fractional share.
A recent example of a stock split is Apple’s latest one in 2014. It issued a split of 7 for 1, which meant that for every share a shareholder owned, they had 7 after the stock split. This lowered the share price from around $650 to just over $90, which increased demand for Apple’s shares.
Mergers and acquisitions
When two companies merge together, or one company acquires another, fractional shares may be inadvertently created. This is because an attempt will be made to ensure that one share in one company is equal to one share in the other. This might result in some stock splits or reverse stock splits.
Can you still receive dividends when you have fractional shares?
Yes, you can. Although, it’s worth noting that if rounding means that you’re due less than a penny in dividends, you’re unlikely to see it hit your account. Fractional share dividends will be split based on the portion of a share that you own. So if shareholders will receive £1 per share in dividends, then 50% of a share will get you 50p.
Pros and cons of fractional shares
Pros
- They get you access to expensive stocks and shares.
- Suitable for those with smaller amounts of money to invest.
- With some, you can earn fractional dividends.
Cons
- They are sometimes difficult to sell, but increasingly it’s becoming easier.
- If your provider has high commissions, it could be expensive to buy fractional shares.
- Not every investing platform will offer fractional shares and UK fractional shares are rare to find.
Bottom line on fractional shares
Fractional shares can get you access to expensive stocks that you might not have been able to afford otherwise. You can choose to invest in other companies with lower price tags if you don’t think it’s worth buying a fraction of a share.
Now that you know how to buy fractional shares, make sure you’ve worked out the fees – buying half a share doesn’t halve your costs!
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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