Fractional Shares and Dividends: Investing with Flexibility

Quick Definition: Fractional share investing lets investors buy portions of a stock or ETF, making it easier to invest small amounts.

When I first started investing back in the 90s, buying a single share of a quality dividend stock often meant saving up for weeks. Today, things are dramatically different - and better for new (or old) investors.

Dividend investing doesn't have to be out of reach if you're starting with a small budget. While stocks like Coca-Cola or ETFs like the Vanguard Dividend Appreciation ETF might cost $50-$200 per share, fractional shares let you get started with as little as $10. Let me break down how this works, why it matters, and how it can help you build passive income.

My Berkshire Hathaway Fractional Share Story

I have a personal story about fractional shares that perfectly illustrates the power of this investment feature.

I've always been a huge fan of Warren Buffett and his company, Berkshire Hathaway. When fractional shares became available at my broker several years ago, I decided to put the concept to the test—because honestly, the entire idea didn't quite make sense to me at first.

Here's the thing: I'd always wanted to own a share (just one) of Berkshire Hathaway. My thought was, if I could ever afford a single share of that company, then I'd truly "made it." And here's why: at the time, a single share of Berkshire Hathaway Class A shares (BRK.A) was trading around $640,000.

That isn't a typo—I'll write it out again: it was around six hundred and forty thousand dollars for one share.

Note: Berkshire Hathaway Class A shares hit $795,671.16 per share on March 20, 2025. I guess I missed that rally.

As a pure "vanity share" move and the most extreme way to try out fractional investing, I placed an order for $10 worth of Berkshire Hathaway Class A shares, clicked buy, and boom—there it was. I was officially a (fractional) shareholder of Berkshire Hathaway.

I held onto it, waiting for the next natural conversation with one of my investing friends so I could casually mention, "Oh yeah, by the way, I bought a little Berkshire Hathaway the other day." Not only did that rhyme, but it was absolutely true.

I think it's important for investors to understand how fractional shares can be for far more useful for practical purposes than vanity shares. The ability to balance and earn dividends at a dollar level makes things so much easier for people who prefer that sort of strategy.

And, as my personal experience just pointed out, this feature allows investors at the very basic beginner level with very little investment capital to participate in these markets where even a single share of anything would have been out of reach before.

What Are Fractional Shares?

Think of fractional shares like buying a slice of pizza instead of the whole pie. They let you own a portion of a stock or ETF rather than having to purchase a full share.

Here's a simple example: If a stock costs $100 and you invest $25, you own 0.25 shares. When that stock pays a $2 annual dividend per share, you'd earn $0.50 per year (0.25 × $2). It's proportional to what you own.

Most platforms like Robinhood, eToro, Schwab, and M1 Finance offer fractional shares, making dividend investing accessible to just about anyone.

Fractional shares are perfect for...

• Small budgets: Invest $10 in a $200 stock instead of waiting to save the full amount
• Diversification: Spread $100 across multiple dividend stocks or ETFs
• Reinvestment: Use your dividends to buy more fractional shares via DRIPs (Dividend Reinvestment Plans)

Benefits of Fractional Shares for Dividend Investing

When I began focusing on dividends in 2012, I wished this option had existed earlier. Fractional shares make dividend investing much more flexible and approachable. Here are the key advantages:

Accessibility

You don't need hundreds of dollars to buy high-priced stocks. I instantly recognized how this could benefit people at every stage of life:

A 25-year-old barista might only have $25 to invest each week, but that's enough to buy fractional shares of quality dividend payers instead of waiting months to afford a full share.

Compounding

This is where the magic happens - much like writing code that builds upon itself to form a sophisticated app, you can reinvest dividends to buy more fractional shares, growing your portfolio over time.

A small $20 monthly investment can grow through DRIPs and fractional shares just as they do with “whole” shares. Each reinvested dividend adds to your wealth-building capability.

Diversification

Split a small budget across multiple dividend payers. For instance, $100 could buy fractional shares in three Dividend Aristocrats (companies with 25+ years of dividend increases).

I learned the importance of diversification the hard way during the tech crash years ago. Having your money spread across different sectors is like having backup instruments at a gig – if one fails, you've got others to carry you through.

Please keep in mind that I’m not a professional or licensed financial advisor and this is not financial advice. I create all of my articles based on my personal experience and research. Check out our full disclaimer(s).

Risks to Consider

While fractional shares are powerful, they do come with risks:

• Platform Fees

  Some brokers charge fees for fractional shares or DRIPs, reducing returns. None of the platforms like Robinhood, Vanguard, eToro, Schwab, and M1 Finance charge these fees.

• Liquidity

  Selling fractional shares may be slower or limited on some platforms due to the nature of how they work. I’ve never personally noticed this as being a problem but it’s something to consider for extremely low volume stocks/funds.

Setting Realistic Goals with Fractional Dividend Investing

Starting small doesn't mean thinking small. I've always found that setting achievable goals keeps me motivated, whether I was learning a new song back in the day or building my dividend portfolio.

Examples of Micro-Goals You Can Track:

• Monthly Income Milestone

  "I want to earn $5/month in dividends within 6 months." That might mean investing ~$480 at a 2.5% yield — or just consistently adding small amounts and reinvesting.

• Own a Piece of Your Favorite Brand

  Whether it's Apple, McDonald's, or Pepsi, use fractional shares to build ownership in companies you use daily.

• Mini Portfolio Challenge

  Try creating a "$5-per-stock" mini-portfolio of five dividend-paying stocks or ETFs. Track their performance and reinvest all dividends.

• Reinvestment Milestone

  "Earn enough in dividends to buy another fractional share." This creates a self-funding loop and builds momentum.

Tracking Tools

Use a spreadsheet or the brokerage app itself to track dividends and reinvestments.

As a software developer, I created my own tracking system, but there are plenty of simple options available. Some platforms offer pie charts or milestone badges — use them as motivational tools.

Why This Matters

Small wins compound — literally. Each small payout can add up to something significant over time. Even modest goals can evolve into meaningful passive income when paired with consistency and time.

Scenario: Building Passive Income with $50

Imagine a college student with $50 to invest. They use one of the platforms like Robinhood, eToro, or M1 Finance to buy fractional shares in a Dividend Aristocrat like Procter & Gamble (~2.5% yield).

With $50, they own ~0.5 shares at $100/share. If Procter & Gamble pays $2.50/share, they earn $1.25/year. By enrolling in a DRIP, they reinvest dividends to buy more fractional shares.

This reminds me of when I started with a small trading account in '95. The first gains seemed tiny, but over time, consistency creates substantial results.

Getting Started with Fractional Shares

Ready to explore fractional shares? Follow these steps:

1. Choose a Platform

   Platforms like Robinhood, eToro, Schwab, and M1 Finance offer fractional share support and no fees.

2. Research Dividend Stocks/ETFs

   Look for stable dividend payers or ETFs like the Schwab U.S. Dividend Equity ETF.

3. Invest Small

   Start with $10-$100, buying fractional shares to diversify.

4. Set Up DRIPs

   Automate reinvestment to compound dividends. This is like setting up a passive income loop that requires minimal maintenance.

5. Monitor and Adjust

   Track dividends and portfolio performance.

FAQs

Let’s recap what we’ve gone over so far with some quick questions and answers…

Bringing It All Together

The journey to financial independence rarely begins with large sums of money. I wish someone had explained this to me back when I was touring with my band in the 90s - I could have been investing small amounts for far more years than I did.

Fractional shares represent a tool that allows investors to...

• Begin their dividend investing journey with as little as $5-10
• Build diversified portfolios despite modest initial capital
• Harness the power of compound growth through dividend reinvestment
• Develop good investing habits without significant financial risk
• Experience the satisfaction of ownership in companies they value

Whether you're a 22-year-old investing your first $50, a 35-year-old professional automating weekly $75 contributions, or a 58-year-old looking to put any amount of discretionary income to work, fractional shares provide the flexibility to start where you are.

Remember that every impressive dividend portfolio began with a first investment. Like learning those first guitar chords or writing your first lines of code, the important thing is to begin. With fractional shares, that first step is within almost everyone's reach.

Conclusion

Fractional shares have democratized dividend investing, making it accessible to investors of all budget sizes. By removing the barrier of needing hundreds of dollars to purchase a single share, these platforms have opened dividend investing to beginners and those with limited capital.

When I think about my own investing journey, I can see how much faster I could have progressed with these tools. Like Warren Buffett (my investing hero) says - it's not about timing the market, but time in the market.

The ability to diversify even a small portfolio, earn proportional dividends, and reinvest those earnings creates a powerful foundation for building passive income over time.

And unlike those $9 cups of coffee I see my friends buying (that money could be going into your brokerage account!), these small investments can actually grow into something substantial.

As with any investment strategy, success comes from consistent contributions, patience, and a focus on long-term goals rather than short-term results. Just like mastering a musical instrument or building complex software, the key is to start simple, be consistent, and let time work its magic.