Dividends, bonus shares, splits and rights issues on the PSX

Companies on the Pakistan Stock Exchange share their success with investors through cash dividends and, sometimes, extra shares. They can also ask shareholders for more money through a rights issue. These "corporate actions" confuse many beginners, mainly because of the dates and the jargon. This lesson untangles them.

Cash dividends

A cash dividend is a part of the company's profit paid to shareholders in cash.

Dividends are quoted as a % of face value

On the PSX, dividends are usually announced as a percentage of the share's face value (also called par value), not its market price. For most companies the face value is Rs 10.

So when Pakistan State Oil (PSO) recently announced a 100% dividend, that meant Rs 10 per share. National Bank's 350% final dividend for 2025 meant Rs 35 per share.

Watch out for companies with a different face value. After a stock split, face value falls. A 5-for-1 split of a Rs 10 share leaves a face value of Rs 2, so "100%" would then mean only Rs 2. Always check the cash amount per share in the company's announcement.

Interim and final dividends

Many companies pay more than once a year. Interim dividends come with quarterly or half-yearly results. The final dividend comes with the annual results and needs shareholder approval at the annual general meeting. Banks like UBL, MCB and MEBL typically pay every quarter.

Dividend yield

Because the percentage is based on face value, a "100% dividend" says nothing about whether the payout is big relative to what you paid. For that, use dividend yield:

Dividend yield = yearly cash dividends per share ÷ share price

For example, FFC paid about Rs 37 per share over the last 12 months. At Rs 541.02, that is a yield of about 6.8%.

The key dates: book closure and ex-date

To receive a dividend, your name must be on the company's shareholder register on the right date. Here is the usual sequence:

1. Announcement. The board declares the dividend, usually with results, and announces the book closure dates.
2. Ex-date. From this day, the share trades without the right to the dividend. The PSX marks the symbol with "XD" (for example LUCKXD). Under T+1 settlement, the ex-date falls one business day before book closure starts.
3. Book closure. For these days, the company "closes its books" and freezes the shareholder list. Everyone on the list gets the dividend.
4. Payment. The cash is paid electronically into the bank account (IBAN) registered with your CDC account, after tax is deducted.

The rule to remember: buy before the ex-date. If you buy on or after the ex-date, the seller gets the dividend, not you.

Recent examples from PSX announcements (book closure start dates):

Exact ex-dates appear on the PSX announcements page. Check them there or with your broker. Our dividends page lists upcoming payouts.

The price drops on the ex-date

On the ex-date, the share price usually falls by roughly the dividend amount, because new buyers will not get it. Buying just before the ex-date to "grab" a dividend does not create free money. You get the dividend, but your share is worth less, and you pay tax on the dividend.

Dividend tax

Tax is withheld before the dividend reaches you. The standard rate for filers on the Active Taxpayers List (ATL) is 15%. Non-filers pay roughly double. Some companies have different rates, for example certain power producers (lower) or companies that pay no tax themselves (higher). Rates can change in each budget, so confirm current rates with FBR or your broker.

Being a filer saves you real money. On a Rs 10,000 dividend, a filer receives about Rs 8,500.

Dividend meaning in Urdu

The Urdu word for dividend is منافع منقسمہ (munafa-e-munqasma), meaning "distributed profit". In everyday speech people also say منافع کی تقسیم (munafa ki taqseem, "distribution of profit") or simply "dividend".

Pakistani company notices in Urdu newspapers use these terms, so they are worth knowing.

Bonus shares

A bonus issue gives you free extra shares instead of cash. A "20% bonus" means 2 new shares for every 10 you hold.

The record-setting example is Mari Energies (MARI). In September 2024 it issued an 800% bonus, meaning 8 new shares for each share held. Someone with 50 shares ended up with 450.

What a bonus does and does not do:

• The company's total value does not change. It is cut into more pieces, so the share price adjusts down by the same proportion.
• Future dividends are paid on your larger number of shares.
• The same ex-date and book closure rules apply. The symbol may show "XB" (ex-bonus).

The tax on bonus shares since 2023

Since 1 July 2023, bonus shares are taxed. The company withholds 10% of the bonus shares for filers (20% for non-filers) and only releases them once the tax, based on the value of the bonus shares, is paid. This tax is final.

Since this tax arrived, companies have issued far fewer bonus shares. Many now use stock splits instead.

Stock splits

A split divides each share into several smaller ones, with a matching cut in face value. No new value is created, and no bonus tax applies.

Recent PSX examples:

After LUCK's split, someone with 10 shares had 50, each worth about a fifth of the old price. Splits make shares cheaper per unit, which can help small investors and trading volume.

Rights issues

A rights issue is the opposite of a dividend: the company asks shareholders for more money. It offers new shares to existing shareholders, in proportion to what they hold, usually at a set price below the market price.

For example, a "20% right" at Rs 15 means you may buy 2 new shares for every 10 you own, at Rs 15 each.

Your choices:

1. Subscribe: pay for the new shares by the deadline.
2. Sell your rights: for a period, the entitlements themselves (often called "right letters") trade on the PSX, so you can sell them to someone else.
3. Do nothing: your entitlement lapses, and your share of the company is diluted.

Why companies do it matters. Raising money for a good expansion can be positive. Raising money to cover losses or repay debt can be a warning sign. Read the company's announcement for the purpose of the issue. The symbol may show "XR" once it goes ex-rights.

Key points

• PSX cash dividends are quoted as a % of face value. 100% on a Rs 10 share is Rs 10.
• Buy before the ex-date to get a dividend. Under T+1, the ex-date is one business day before book closure starts.
• Filers have 15% tax withheld on most dividends; non-filers pay more.
• Bonus shares split the same value into more shares and, since July 2023, are taxed at 10% for filers. Splits (LUCK 5:1, UBL 2:1) have become more common.
• A rights issue asks you to invest more money; you can subscribe, sell the rights, or let them lapse.

Next lesson: How to read company results. Track upcoming payouts on our dividends page.