Like many stocks over the past couple of years, Walt Disney (NYSE: DIS) stock has been in a kind of wild roller coaster ride, with more twists and turns than Space Mountain. Over the past year, the media and entertainment giant’s stock price is down about 25% and it’s down about 28% from its 52-week high.
But Disney’s stock price decline has more to do with larger economic and market forces, as well as geopolitical concerns, than it has to do with the actual business operations of the company. Year to date, Disney’s stock price is only down 5.6%, while the S&P 500 is down 9.3% and the Nasdaq Composite is off 13%.
The company is coming off an excellent fourth-quarter earnings report, so the recent price drop looks like its offering a good opportunity to buy right now. At its current price of about $146 per share, its per-share price might be out of reach for some investors, but not if they buy fractional shares. Investors can invest in Disney for as much, or little, as they like — even less than the $7.99 per month it costs for Disney’s streaming service, Disney+.
Investing by the dollar amount
Through fractional shares, investors can buy a stock using a designated dollar amount rather than by purchasing individual shares. So, if you had just $50 to invest initially, you wouldn’t have to seek out stocks with a share price at or below that total. You’d simply invest that $50 in a stock like Disney, and that would buy you the fraction of the share that the amount represents. In this case, $50 would buy you about 34.2% of one share. The dollar amount is up to you and many stock brokerage services will let you invest as little as $1 in the stock of your choice.
Online brokers like Robinhood Markets offer some form of fractional shares investing, although they may call it something else. Charles Schwab calls them “stocks by the slice,” while Fidelity brands them as stock slices. The major brokerages like these offer fractional shares for pretty much all stocks and ETFs.
The fraction of the share you buy functions the same as a full share. At the stock trades throughout the day, you get the same percentage return (or loss), as the full share gets. If a stock rises in price by 10% in a day, so does your fractional share. You are also entitled to that same percentage of any dividend that’s paid out for an individual share.
Fractional shares strategies
Aside from the fact that fractional shares offer you better access to the universe of great stocks on the market, there is another key advantage to investing this way: It allows you to have great diversification, even if you are limited in the amount that you can initially invest.
Say you had a total of $200 to invest — you could put $50 in Disney, $50 in Apple, $50 in Costco, and $50 in Tesla, for example. All of these stocks cost well over $50 per share.
This might be preferable to investing all of it in one of these stocks or trying to diversify by buying shares of stocks that cost less but don’t have the same status, market share, brand recognition, and growth potential as these major market leaders.
Another good strategy is to establish a plan to invest in these fractional shares every month, or as often as you regularly can. Investing even just $10 per month in each of these fractional shares — not much more than the cost of a Disney+ subscription — might not be as intense as an episode of The Book of Boba Fett, but it would certainly help you build up your investment portfolio.
In just a few months, whether you invested $10 or $50 per month, you’d own full shares of Disney and be invested in the long-term growth potential of this great company.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Apple, Costco Wholesale, Tesla, and Walt Disney. The Motley Fool recommends Charles Schwab and Nasdaq and recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.