How to really profit from the Federal Budget

Dividend-paying stocks like Retail Food Group Limited (ASX:RFG) remain the only game in town.

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So it seems the Liberal Australian government has given up its pretense that Australia has a debt crisis and decided to stick to its core principles in supporting small business and working families.

Even the most naive in government also know that in the reality of post-mining boom Australia a budget in surplus suggests income tax is too high. A public perception of this is a guaranteed election loser, especially for an incumbent Liberal party.

This probably explains the shift to spending over debt reduction to stimulate the economy and impress the voters. Expect more of the same in the years ahead then as government largesse supports small business, modest income taxes and working Australians.

Stocks to consider

Small businesses operated by multi-brand franchisor Retail Food Group Limited (ASX: RFG) such as its pizza and mobile coffee joints including the Coffee Guy may benefit via tax cuts and offsets if they qualify under the maximum revenue requirements.

Retail Food group is the franchisor of several hundred junior coffee and pizza businesses and recently noted a 'buoyant outlook" on upgrading its profit guidance – any additional tailwinds are likely to support the buoyant scenario.

Consumer good and services

Other retailers likely to benefit from a small business stimulus are those in the consumer goods and services sector including Silver Chef Limited (ASX: SIV), Dick Smith Holdings Ltd (ASX: DSH), Flexigroup Limited (ASX: FXL) and Affinity Education Group Ltd (ASX: AFJ).

Childcare businesses

Affinity Education is one of a number of childcare aggregators that are obvious beneficiaries of greater childcare subsidies and the stock has climbed 4 cents or 3.74% in morning trade. Folkestone Education Trust (ASX: FET) is another early learning or childcare centre provider that is also likely to benefit from more government support.

The real budget winners?

In all honesty though this budget does not really change the fundamentals for an investor looking to outperform in the years ahead.

If you really want to profit from the Federal Budget you've got to appreciate it in the context of the new low rate environment.

The yield chase looks likely to remains the only game in town out to 2018, which is why those who position their portfolio to profit could be in for some eye watering returns!

The Motley Fool's top yield pick is still on an attractive valuation, is in the consumer space, pays a big yield and is growing into Asia and the United Kingdom at a rapid pace!

Motley Fool contributor Tom Richardson owns shares of Retail Food Group Limited. You can find Tom on Twitter @tommyr345  The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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