CAPEX (Capital Expenditure) is investment in long-lived physical assets: new mines, ships, pipelines, refineries. Formula: Maintenance CAPEX (keeps assets running) + Growth CAPEX (expands capacity). In shipping, newbuilding CAPEX for a VLGC is ~$90–110M. In mining, a new copper mine costs $2–8B and takes 10–15 years. Low maintenance CAPEX = higher Free Cashflow = more dividend capacity.
MB Capital Strategies Glossary — Updated June 2026
QUICK ANSWER
CAPEX Formula: Capital Expenditure = Purchases of PP&E (found in the investing activities section of the cash flow statement). FCF = Operating Cash Flow − CAPEX. For dividend investors: high capex intensity compresses free cash flow — but shipping & mining companies offset this with long asset lives and variable dividend structures. Example: BHP FY2025 CAPEX $10.2bn vs. operating cash flow $22.4bn = FCF $12.2bn supporting 5.3% yield.
CAPEX (Capital Expenditure) is the money a company spends to acquire, upgrade or maintain long-term physical assets. Think of a shipping company buying a new tanker, a mining company sinking a new shaft, or a pipeline firm laying new pipe. Every dollar spent on capex is a dollar that cannot be paid out as a dividend — which is why hard-asset investors track capex intensity closely.
You find CAPEX in the cash flow statement under "investing activities", typically listed as "purchases of property, plant and equipment" or "capital expenditures". It is always a cash outflow — a negative number reducing free cash flow (FCF).
This is the most important distinction for dividend investors:
| Type | Purpose | Effect on Dividends |
|---|---|---|
| Maintenance CAPEX | Keep existing assets operational (hull drydocking, mine maintenance, pipeline inspection) | Unavoidable — reduces sustainable FCF baseline |
| Growth CAPEX | New ships, new mines, new capacity | Temporarily reduces FCF; boosts future earnings if returns meet hurdle rates |
A company with low maintenance CAPEX relative to depreciation is the ideal candidate for high dividend payouts. If maintenance CAPEX roughly equals depreciation, assets are being maintained — not eroded. If maintenance CAPEX far exceeds depreciation, assets are more expensive to run than the accounts suggest.
Shipping companies like BW LPG and TORM face periodic drydocking costs (every 5 years) plus fleet renewal CAPEX every 20-25 years. Companies on the spot market often delay fleet renewal to maximise near-term dividend capacity. This is why CAPEX timing matters: a company ordering new ships today will see reduced FCF for 2-3 years before the new assets generate revenue.
Miners like BHP and Rio Tinto have among the highest CAPEX intensities of any industry. Mining CAPEX includes sustaining capex (keeping existing mines productive), development capex (expanding mines) and brownfield/greenfield exploration. BHP's sustaining capex alone runs $3-4 billion per year. The key ratio to track is CAPEX as % of Revenue — above 20% is high and compresses dividend capacity.
Pipelines like Enbridge and Kinder Morgan typically have stable, predictable maintenance CAPEX because the infrastructure is long-lived and regulated. Growth CAPEX (new pipeline projects) is funded via project finance or equity issuance, preserving dividend capacity. This is why midstream stocks tend to offer more reliable dividend growth than cyclical miners or tanker companies.
When analysing a dividend stock in hard-asset sectors, ask three questions:
1. What is the CAPEX-to-FCF ratio? If CAPEX is consuming more than 60-70% of operating cash flow, there is limited room for a generous dividend unless the company uses debt. High leverage plus high CAPEX is a red flag for dividend sustainability.
2. Is CAPEX rising or falling? A company entering a heavy investment phase (ordering ships, expanding mines) will have temporarily reduced FCF. If management is transparent about the investment cycle and has a clear return timeline, this can be a buying opportunity. If CAPEX keeps rising without a clear return, it is a warning sign.
3. Maintenance vs growth CAPEX disclosure: Some companies do not disclose the split explicitly. In that case, compare CAPEX to depreciation. If CAPEX consistently exceeds depreciation by a wide margin, the company is expanding. If CAPEX is below depreciation, assets may be deteriorating — temporarily boosting FCF but unsustainably.
Every hard-asset dividend investor should understand that dividends are paid from free cash flow, not reported earnings. CAPEX is the bridge between operating cash flow and FCF. A company earning $500 million in operating cash flow but spending $300 million in CAPEX has only $200 million in FCF to fund dividends, debt service and buybacks — regardless of what the income statement shows.
This is why sectors with structurally lower CAPEX requirements (like midstream pipelines with long-lived infrastructure) can sustain higher payout ratios than capital-hungry miners or shipping companies replacing their fleets.
Understanding sector-specific CAPEX intensity helps compare dividend sustainability across different hard-asset classes:
| Sector | Sustaining CAPEX (% Revenue) | Dividend Sustainability |
|---|---|---|
| Crude/Product Tankers | 3–8% | High (low reinvestment need) |
| Midstream Pipelines | 8–15% | Very High (fee-based + long-lived assets) |
| Iron Ore / Coal Mining | 15–25% | Moderate (requires mine replacement) |
| Upstream E&P | 30–50% | Variable (oil-price sensitive) |
Real example: CMB.Tech (crude/product tanker, mixed fleet) generates ~$550M EBITDA on revenue of ~$520M with minimal sustaining CAPEX — which is why the company can pay out $0.64/share in a single quarter including special dividends. A mining company with similar EBITDA would need to reinvest $80–130M to maintain production, leaving significantly less for shareholder returns.
When reviewing annual reports for hard-asset companies, these CAPEX-related patterns signal risk to future dividends:
1. CapEx/Revenue ratio rising sharply: If a mining company's CapEx as a percentage of revenue rises from 10% to 25% in two years without a new production start-up, it may signal rising sustaining costs or project overruns. Compare quarterly CapEx guidance to actual spend for early warning signs.
2. Maintenance vs. growth CapEx blurring: Companies sometimes reclassify "sustaining CapEx" as "growth" to report better free cash flow. Read the notes carefully — sustaining CapEx (required to maintain current production) should always be deducted from FCF for dividend sustainability analysis.
3. Deferred drydock or major maintenance: In shipping, skipping a scheduled drydock saves $3-5M per vessel but creates a future liability. Companies that defer maintenance to boost near-term FCF are borrowing from the future. Check the drydock schedule and whether upcoming drydocks are fully funded in the balance sheet.
4. Growth CapEx without committed offtake: Mining expansions require capital before any production revenue arrives. A company committing $500M to a new mine without binding sales contracts is taking significant commodity price risk. Contrast this with FLEX LNG vessels ordered with long-term charters already signed — contracted offtake before the asset is built.
The cleanest dividend businesses in the hard-asset space have low sustaining CapEx relative to earnings, no overdue maintenance backlog, and funded growth projects with visible offtake contracts. This CapEx discipline is what separates consistent dividend payers from companies that cut dividends every downturn cycle.
The best capital allocators in the hard-asset space treat shareholder capital as scarce. When day rates are high and commodity prices strong, management teams face pressure to order vessels and expand mines. Resisting that pressure — or deploying capital only with contracted returns — is what separates excellent businesses from average ones. Warren Buffett's principle applies directly: growth CapEx creates value only when the return on invested capital (ROIC) exceeds the cost of capital. In shipping, where ROIC can swing from -5% in a trough to +35% in a peak, timing the capital allocation cycle is as important as picking the right company.
The practical screen: compare a company's disclosed return on equity (ROE) or ROIC across a full cycle. If ROE never exceeded cost of capital even in boom years, growth CapEx has historically destroyed value. If ROIC is consistently 15%+ through the cycle, management is disciplined. Companies like FLEX LNG (ordered vessels with long-term charters) and TORM (fleet expansion timed at cycle lows) represent capital allocation discipline rewarded by above-average total returns.
Marco Bozem
Investor & Analyst | Hard Assets, Dividends, Shipping | MB Capital Strategies
Marco has been analysing hard-asset and dividend stocks for years, focusing on shipping, mining and energy. All analyses are based on publicly available financial reports and personal assessments. Not investment advice.
Read next: BHP Analysis 2026: CapEx Cycle, FCF & Mining Dividends →
