What's the smallest number of shares of stock that I can buy?

By Investopedia Staff AAA
A:

The answer to this question is not as straightforward as it seems. Many people would say that the smallest number of shares that an investor can purchase is one, which is true if you are buying from your broker or on an exchange. But unless you're buying Warren Buffett's Berkshire Hathaway - which was trading at around $109,100 in February 2007 - buying one share at a time isn't the most effective way to buy stocks. This is because the commission on the trade does not depend only on the amount of shares you are buying or selling. You are charged the full commission regardless of whether you buy one share or a whole board lot.

However, the answer to this question is complicated by something called a dividend reinvestment plan (DRIP). A DRIP is a plan in which a dividend-offering corporation or brokerage firm allows investors to use dividend payouts to purchase more of the same shares. As this amount "drips" back into the purchase of more shares, it is not limited to whole shares. Thus, you are not restricted to buying a minimum of one share, and the corporation or brokerage keeps accurate records of ownership percentages. For example, if you were enrolled into the DRIP of Cory's Tequila Corporation (CTC) and you owned one share of CTC - which pays a dividend of $2 per share and is trading at $40 - the $2 dividend would be automatically used to purchase 0.05 ($2/$40) shares of CTC. The reason DRIPs are so popular is that most of them don't have commission or brokerage fees, so it is cheaper for investors to increase their holdings and use their dividend payouts without having to pay extra fees.

For related reading on this topic, check out The Perks Of Dividend Reinvestment Plans.

RELATED FAQS

  1. Is the Dow Jones a stock exchange?

    Learn about the Dow Jones Industrial Average and its impact. This historically significant index provides a daily snapshot ...
  2. Is the Dow Jones a public company?

    Find out how the Dow Jones Industrial Average tracks the health of the U.S. economy. This fluctuating number indicates the ...
  3. What do traders' hand signals mean on the trading floor?

    Stock market traders use a series of hand gestures to communicate with runners in the pit. There are nine common hand gestures ...
  4. What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within ...
RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. International Finance Corporation

    The International Finance Corporation is an organization dedicated ...
  3. Bidder

    The party offering to buy an asset from a seller at a specific ...
  4. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
  5. Registration Right

    A right which entitles an investor who owns restricted stock ...
  6. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
comments powered by Disqus
Related Articles
  1. How To Invest In The Nikkei 225
    Mutual Funds & ETFs

    How To Invest In The Nikkei 225

  2. A Guide To Japan’s Nikkei 225 Index
    Investing Basics

    A Guide To Japan’s Nikkei 225 Index

  3. Warren Buffett's Probability Analysis ...
    Investing Basics

    Warren Buffett's Probability Analysis ...

  4. Wall Street's Enduring Impact On The ...
    Investing Basics

    Wall Street's Enduring Impact On The ...

  5. The Handy Guide To Global Stock Market ...
    Markets

    The Handy Guide To Global Stock Market ...

Trading Center