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.

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