What is a fractional share?
Robinhood, the simple commission free trading app that has taken young investors by storm, has now offered an option quite appealing to the aspiring investor. Many new traders would love to have a part of the action when it comes to expensive stocks like Amazon (AMZN) or Apple (AAPL) but are simply priced out with the former trading for over $1700 and even the latter trading at over $250 a share.
Similar to purchasing Bitcoin (BTC) or other cryptocurrencies on Coinbase or Robinhood, a user can put as little as $1 toward a share of a company and own a portion of a share. Obviously, over time of gradually investing in partial shares, it can lead to full ownership of a share, much like a gradual investment in Bitcoin can lead to owning “one full Bitcoin”.
What if there’s a stock split?
Robinhood addresses the issue of a stock splits and dividends on their support page.
If a stock experiences a forward stock split or a reverse stock split, you’ll receive the relevant amount of fractional shares. For example, if you own 2.5 shares of MEOW valued at $10 per share, and MEOW experiences a 2 for 1 (2:1) forward stock split, you’ll now own 5 shares valued at $5 per share.
Robinhood support
Can I still get dividends on a fractional share?
Yes! Robinhood users can actually get dividends on fractional shares which is a pretty awesome feature. According to Robinhood, the dividend payment is based on the fraction of the stock owned and rounded to the nearest penny. This will allow the casual entry level investor a huge opportunity to truly diversify their portfolio while still collecting dividends on partial shares.
Is fractional investing a new thing?
Fractional investing is not a new practice. Companies have traditionally allowed investors to reinvest their dividends into partial shares. However, it is a relatively new practice among popular brokers, with Charles Schwab becoming the first to announce the allowance of fractional share investing back in October.
Does Robinhood allow dividend reinvesting?
Funny you should ask, along with this announcement about fractional shares, Robinhood did announce they will be rolling out dividend reinvesting in early 2020. I have since signed up for Robinhood dividend reinvesting, and love to see my stocks get a fractional percentage of a new share with each dividend payment!
Can I start buying fractional shares today?
Like many other cool new feature additions on Robinhood, there is a waitlist. Below is the screencap of the waitlist spot for your humble author. Hopefully, the wait will not be too long though! Update: I have since been approved
Are Robinhood competitors starting to notice and offer the same services?
The competition is noticing the popularity. Charles Schwab has launched Schwab Stock Slices, it seems it is marketed towards parents and grandparents to give the gift of stocks to children (based on advertising). Fidelity offers a similar service with a similar name called Stocks by the Slice. Additionally, the popular savings and investing app Stash is also offering fractional shares. This was previously an uncommon practice for these types of services, Robinhood has continually pushed the industry forward in many ways, including in this aspect.
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