When you buy a share on the Pakistan Stock Exchange, you can make money in three ways: the price can rise, the company can pay you cash dividends, and it can give you extra shares (bonus shares). Adding them together gives your total return. This lesson explains each one and then shows why time is your biggest ally.
1. Price gains (capital gains)
If you buy a share at Rs 300 and later sell it at Rs 360, you have made a capital gain of Rs 60 per share, or 20%. If you sell at Rs 250 instead, you have a capital loss.
Two things to remember:
- A gain is only "on paper" until you sell. The price on your app changes every day. Nothing is locked in until you sell.
- Tax applies when you sell at a profit. For filers on the Active Taxpayers List (ATL), capital gains tax on listed shares bought from 1 July 2024 is 15%, whatever the holding period. Non-filers pay more. Rules change in most budgets, so confirm the current rate with your broker or a tax adviser.
Prices rise over the long run when companies grow their profits. A company earning twice as much in ten years will usually be worth a lot more, even though the price will swing up and down on the way.
2. Cash dividends
Many PSX companies share part of their profit with shareholders as cash. This is a dividend. On the PSX, dividends are usually announced as a percentage of face value, which for most companies is Rs 10.
So a "100% dividend" on a Rs 10 face value share means Rs 10 per share. Pakistan State Oil, for example, recently announced a 100% dividend (Rs 10 per share) with book closure starting 21 October 2026.
Dividends are a big part of PSX returns. Many large companies pay out a high share of their profits. Using trailing dividends per share (DPS) and prices at the 30 September 2026 close:
| Company | Price (Rs) | Trailing DPS (Rs) | Dividend yield |
|---|---|---|---|
| FFC | 541.02 | 37 | about 6.8% |
| UBL | 421.08 | 32 | about 7.6% |
| MEBL | 554.91 | 32 | about 5.8% |
| OGDC | 316.73 | 17 | about 5.4% |
| MCB | 390.04 | 36 | about 9.2% |
Dividend yield is the yearly dividend divided by the price. Past dividends are not promised for the future. A company can cut or skip a dividend in a bad year.
Tax is deducted before the money reaches you: the standard withholding rate for filers is 15%, and non-filers pay roughly double. Some companies (for example certain power producers) have different rates. Lesson 6 covers dividends in detail.
3. Bonus shares
Sometimes a company gives shareholders extra shares instead of cash. A "20% bonus" means you get 2 new shares for every 10 you own.
The famous recent example is Mari Energies (MARI). In September 2024 it issued an 800% bonus: 8 new shares for every 1 held. A holder of 100 shares ended up with 900.
Bonus shares do not create value by themselves. The company is the same size, now split into more pieces, so the price adjusts down. They matter because future dividends are paid on the larger number of shares. Since July 2023, bonus shares are taxed: the company withholds 10% of the bonus shares for filers (20% for non-filers) until the tax is paid. Since then, many companies have preferred stock splits instead, like Lucky Cement's (LUCK) 5-for-1 split in April 2025.
Putting it together: total return
Your total return = price gain + dividends received (+ the value of any bonus shares, which shows up in the adjusted price).
Example (made-up round numbers to show the method):
- You buy 100 shares at Rs 200 = Rs 20,000.
- Over one year you receive Rs 18 per share in dividends after tax = Rs 1,800.
- At year end the price is Rs 220, so your shares are worth Rs 22,000.
- Price gain = Rs 2,000. Dividends = Rs 1,800. Total gain = Rs 3,800.
- Total return = 3,800 / 20,000 = 19%.
Notice that dividends supplied almost half of the return. On the PSX, ignoring dividends means ignoring a big part of the picture.
Why compounding is so powerful
Compounding means earning returns on your earlier returns. If you reinvest dividends and keep holding, your money grows on a bigger and bigger base each year.
The KSE-100 shows this clearly. It started at 1,000 points in November 1991 and closed at 169,969 on 30 September 2026. That is about 15.9% a year in rupees, compounded over almost 35 years.
One detail matters here. PSX describes the official KSE-100 as a total return index, with dividends adjusted into it, and in June 2025 it launched a separate price-only version (KSE100PR). So the 15.9% figure may already include some reinvested dividends, especially in later years. Treat it as a rough long-run guide, not a precise price-only number.
Here is what that rate would mean for Rs 100,000 (for illustration, not a forecast):
| Years | At 15.9% a year (PKR) | At 8.1% a year |
|---|---|---|
| 5 | about Rs 209,000 | about Rs 148,000 |
| 10 | about Rs 437,000 | about Rs 218,000 |
| 20 | about Rs 1,913,000 | about Rs 475,000 |
Three honest warnings come with this table:
- The rupee lost value over that period. Measured in US dollars, the KSE-100's growth since 1991 is only about 8.1% a year. Part of the rupee gain just reflects inflation and devaluation. Your real (after-inflation) return is lower than the headline number.
- The ride was not smooth. The index has had many deep falls, including the 2008 crisis and 2026's record one-day drop of 9.57%. Lesson 9 covers this.
- Recent years were exceptional. From 44,872 in October 2021 to 169,969 in September 2026, the index rose about 30.5% a year. Do not expect that pace to continue.
The lesson from the table is not "you will get 15.9%". It is that time does the heavy lifting. Twenty years at a moderate rate beats five years at a great rate.
Reinvesting dividends
When you receive a dividend, you can spend it or use it to buy more shares. Reinvesting is how dividends compound. Even a 6% dividend yield, reinvested every year, adds up hugely over a decade. Most beginners who build wealth on the PSX do it by buying steadily, reinvesting income and not panicking in falls.
Key points
- Shares pay you through price gains, cash dividends and bonus shares.
- PSX dividends are quoted as a percentage of face value (usually Rs 10), so 100% means Rs 10 per share.
- Bonus shares split the same company into more pieces. Since 2023 they are taxed, so splits have become more common.
- Total return = price change + dividends. On the PSX, dividends are a large slice.
- The KSE-100 grew about 15.9% a year in rupees (about 8.1% in dollars) since 1991, with deep falls along the way. The official index adjusts for dividends, so treat this as a rough guide.
Next lesson: How to read a stock quote. See upcoming payouts on our dividends page.