The possibility that growth will come in below the government’s stated target, as evidence continues to mount that the domestic economy is slowing, has inspired another round of policy movies designed to stimulate growth in China.

The potential for a significant surge in US capital spending, with aging capital stock in the context of strong cash flows and cheap money, has teased investors for several years now. But signs suggest this time there could be a real payoff.

A consistent thread for us is dividend growth, a sure sign of solid underlying business fundamentals and a good indication of management’s confidence in the future.

The first two themes are more specific to 2014, while the third is an expression of general preference for the long term.

Below we explore all of them, with actionable advice.

Chinese Stimulus

The Chinese government has introduced  a new set of stimulus measures, including incentives for spending on railways and other construction projects, as evidence mounts that the Middle Kingdom wont’ meet Premier Li Keqiang’s 7.5 percent gross domestic product (GDP) growth target for 2014.

The State Council announced a plan this week to sell USD24 billion of US Treasury holdings to build railways in the underdeveloped central and western regions of China. It also plans a USD35 billion fund dedicated to rail financing as well as an increase in financing to build low-cost housing.

The Asian Development Bank recently issued a report estimating that Chinese GDP grew by 7.7 percent during the fourth quarter of 2013 but would slow to 7.5 percent in 2014, even amid higher social spending.

GDP is forecast to decline again to 7.4 percent in 2015, even though the rest of the world is expected to recover and increase its demand for Chinese goods.

China’s manufacturing purchasing managers’ index (PMI) rose to 50.3 in March from 50.2 in February, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

The March PMI was just above a consensus forecast of 50.2. Any figure above the 50 mark indicates expansion of manufacturing activity, while anything below 50 signals contraction.

The rise in the official PMI contrasts with a weak preliminary reading of the HSBC Flash PMI, which dropped to an eight-month low of 48.1 in March.

China will also extend a preferential tax policy to more small companies and increase investment in its program to replace shantytowns with more stable housing. Accelerating shantytown transformation and getting millions of residents into modern buildings should drive investment and promote consumption.

The government has allocated more than 1 trillion yuan ($178 billion) this year to redeveloping shantytowns.

Railways are a priority to link underdeveloped regions to the booming coastal cities and boost growth in central and western China. The State Council announced plans to build more than 6,600 kilometers of new rail lines this year.

This is not quite a repeat of previous occasions when China stimulated growth, as the scale of the stimulus is modest, likely aimed at smoothing GDP growth at around the 7.5 percent target. These efforts are aimed at balancing growth and jobs in the short-term, boosting long-term growth prospects and mitigating financial risks.

Nevertheless, they should provide some support for industrial resource prices, including copper, coal and iron ore.

CE Portfolio Aggressive Holding Wajax Corp (TSX: WJX, OTC: WJXFF) has slumped over the past year amid a downturn in the mining sector and spending cuts in the oil and gas sector.

Wajax sells and services industrial parts and equipment, from dump trucks to hydraulic pumps, across sectors such as resources, construction and transportation, through 125 branches across Canada.

This Canadian resource play, which is currently yielding 6.5 percent, should benefit from a Chinese stimulus package, the anticipation of which has already catalyzed a bounce for iron ore prices.

Accelerating economic growth elsewhere in the world will also support an improvement in financial and operating metrics in 2014 and into 2015.

Wajax’s longer-term prospects are favorable, and recent evidence suggests end-market demand will improve.

Wajax share price hit a 52-week closing high of CAD39.28 on March 7, 2014, but is still well below the CAD50 range it enjoyed two years ago–before it along with Canada’s resource sector entered a fallow period.

Wajax traded below CAD30 in June 2013, after the company cut its monthly dividend by 26 percent to CAD0.20. There are lingering fears management could cut the payout even further to free up cash for more aggressive debt repayment and/or to pursue acquisitions to drive growth.

There is a sound case for another dividend cut, assuming conditions that have prevailed over the last two years persist, as it would provide greater financial flexibility.

On the other hand, Chinese stimulus and a return to more normal growth in the rest of the world–particularly North America–would likely obviate the need to free up more cash.

Management reported a 7 percent increase in fourth-quarter revenue to CAD391.7 million on gains for its equipment, power systems and industrial components segments.

Equipment sales were up 8 percent on strong forestry and construction equipment sales. Power systems sales were up 8 percent on higher power generation equipment volume and on-highway parts and service volume.

Revenue for 2013 was down 2.6 percent to CAD1.428 billion from CAD1.466 billion in 2012. Industrial components increased slightly, while the equipment and power systems divisions’ revenues declined slightly.

Sales to the oil and gas sector continued to be soft throughout 2013, impacting the power systems and industrial components segments, as customers continued to limit capital and maintenance spending for exploration and well-servicing equipment.

Mining activity, including the oil sands, was soft for all three segments as customers reduced spending because of weaker commodity prices.

Wajax management noted during its fourth-quarter and full-year 2013 earnings conference call that it expects more weakness in its business this year, similar to 2013, citing belt-tightening in the oil and gas and mining industries. First-quarter earnings are forecast to be lower versus the prior corresponding period.

Wajax financial and operating numbers should begin to turn for the positive in late 2014 and to strengthen in 2015 along with recovering oil and gas capital expenditure and the build-out of Canada’s liquefied natural gas (LNG) export capacity.

Wajax is a buy under USD35.

What Do We Want? CAPEX! When Do We Want It? Now!

It’s a potential catalyst that’s enthralled investor for a few years now: Companies are sitting on record levels of cash but are loath to spend it, though goods-producing equipment is getting old and strong cash flows, low leverage, cheap financing costs have created pent-up demand.

Nevertheless, low levels of capital expenditure (CAPEX) have persisted since the Global Financial Crisis/Great Recession.

Gluskin Sheff + Associates Inc (TSX: GS, OTC: GLUSF) Chief Economist David Rosenberg recently noted that a recent capacity utilization reading of 77 percent for US manufacturing indicated the potential for a “modest” CAPEX growth cycle.

Mr. Rosenberg also noted that the last time the corporate sector allowed its capital stock to get this old and obsolete was in 1958. In 1959 the annual growth rate in volume capital spending swung from negative 6 percent to plus 13.5 percent.

Historically, given the rate of depreciation, 4 percent real CAPEX growth is necessary just to prevent obsolescence from taking hold. But over the past five years the US has averaged less than 1 percent annual growth.

Productivity growth is waning. And with clear negative implications for profit margins if not reversed, the incentive to start plowing some of the cash hoard back into the real economy is running very high and is actually becoming increasingly evident in the recent business survey data.

The corporate sector is flush with a tremendous level of cash on the balance sheet–almost $2 trillion, as Moody’s Investors Service reported this week.

And debt markets remain open for financing needs. The ability is there to embark on a more normal capital spending cycle.

Corporate spending has been the missing link in this underwhelming economic recovery, but the time is ripe for a CAPEX resurgence.

Among the key factors supporting this outlook, in addition to tight capacity utilization and the age of capital equipment, is an acceleration of global growth, including a pick-up in global manufacturing. The political environment in the US has also improved, with less brinksmanship in Washington, DC. And even maintenance CAPEX is well below historical averages.

Chinese investment is a significant driver for global resource demand. But US CAPEX is huge: about USD2 trillion per year. There are solid opportunities in several sectors, including energy and transportation.

The connection between business spending and energy and transportation stocks is ostensibly direct, as more energy is used and more goods are delivered when business activity is rising.

Oil and gas favorites, including April Best Buy ARC Resources Ltd (TSX: ARX, OTC: AETUF) as well as fellow Aggressive Holdings Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF), Enerplus Corp (TSX: ERF, NYSE: ERF), Peyto Exploration and Development Corp (TSX: PEY, OTC: PEYUF) and Vermilion Energy Inc (TSX: VET, NYSE: VET) should benefit from an increase in US CAPEX.

Buy ARC under USD28, Crescent Point under USD48, Enerplus under USD18, Peyto under USD33 and Vermilion under USD56.

Conservative Holding TransForce Inc (TSX: TFI, OTC: TFIFF) will certainly benefit from an uptick in the movement of goods throughout North America, its recent expansion in Texas and elsewhere in the US as part of a larger consolidation of a still-fragmented industry availing it of much more opportunity.

Management has been circumspect on 2014, but guidance could prove conservative for a company that raised its dividend as recently as October 2013.

Revenue for 2013 was off by 1 percent to CAD1.309 billion, while income from operating activities declined to CAD209.4 million from CAD247.1 million in 2012.

TransForce is a buy for the long term under USD23.

Other solid options for dividend growth include Contrans Group Inc (TSX: CSS, OTC: CTFIF), which provides shippers with van, flatbed, dry tank, liquid tank and dump trailer equipment as well as third-party logistics services.

Management reported 2013 total revenue growth of 9.6 percent to CAD572.3 million, as earnings per share grew to CAD0.87 from CAD0.83 a year ago on strong organic growth and several awards of new business. Contrans boosted its dividend by 25 percent in April 2013.

Contrans, which is yielding 3.8 percent, is a buy under USD12.

Dividend Growth

Six CE Portfolio Holdings announced dividend increases during fourth-quarter and full-year 2013 reporting season.

Of the 35 companies currently held in the Portfolio 21 have announced at least one dividend or distribution increase over the past 12 months. These 21 have combined for a total of 27 dividend-increase announcements.

Six of the 16 Aggressive Holdings have announced dividend increases since February 2013. Recent Portfolio addition Magna International Inc (TSX: MG, NYSE: MGA), including the 18.8 percent increase management announced along with fourth-quarter and full-year 2013 financial and operating results on Feb. 13, 2014, has boosted its payout twice within the past 12 months.

Fifteen of the 19 Conservative Holdings have raised their payouts. Two of the four that haven’t announced an increase over the past 12 months–Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF) in November 2012 and RioCan REIT (TSX: REI-U, OTC: RIOCF) in December 2012–did actually do so relatively recently.

Artis REIT (TSX: AX-U, OTC: ARESF) has been paying CAD0.09 per unit since mid-2008. Student Transportation Inc (TSX: STB, NSDQ: STB) has held its annualized rate at CAD0.56 since its first dividend declaration in October 2006.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) and EnerCare Inc (TSX: ECI, OTC: CSUWF), which both added to their totals within the past month, have announced three dividend increases since February 2013.

AltaGas Ltd (TSX: ALA, OTC: ATGFF) has boosted its dividend twice during the defined period.

In addition to signaling solid underlying business conditions and indicating management confidence, consistent dividend growth also provides a great inflation hedge.

And over the long term dividend growth is highly correlated with strong share performance.

Consult the Portfolio tables for advice and buy-under targets for Conservative and Aggressive Holdings.