MB Capital Strategies Glossary — Updated June 2026
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.
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.