The $100 billion federal budget boost to businesses will give our economy the kickstart it needs to get to COVID normal. But it isn't all good news for ASX investors.
Don't get me wrong. I think there are few areas wanting in Treasurer Josh Frydenberg's first budget – and he's gone big for his first rodeo.
There are incentives for businesses to hire workers under 35, invest in plant and equipment for instant write-offs and bring forward losses till FY22.
Federal budget favours ASX growth over income stocks
The big budget is aimed at creating 950,000 jobs over the next four years, and I don't have a reason to think this won't work.
That can only be good news for our economy and that can only translate into higher profits for ASX stocks. But before you throw your hands up the air in celebration, this budget could be bad news for income investors hunting for dividends.
How ASX dividends could be affected by federal budget
You see, the enticing incentives are aimed to get companies to invest and hire. That means less retained earning to be handed back as distributions to shareholders.
Also, these companies will be paying less tax till at least FY22 thanks to generous Uncle Frydenberg. Unless the ASX stock holds a large bank of franking credits, this could limit their ability to hand back the generous tax credit to income investors.
The other point to note is that companies that generate revenue of over $5 billion are largely excluded from many of the tax and investment incentives. So this could push income investors into a concentrated area at the top the S&P/ASX 200 Index (Index:^AXJO).
But make no mistake. The budget unintentionally favours growth stocks over income.
This sector is a big winner from the FY21 budget
On that note, there are a number of stocks that are well placed to benefit from the government's cash splash.
One area that the federal government is targeting is infrastructure construction. Frydenberg unveiled $14 billion in new and accelerated projects nationwide, a $2 billion road safety upgrade an $1 billion for local councils to improve footpaths and local roads.
There is also $2 billion set aside for water infrastructure to win over our farmers who have been doing it tough with bushfires and drought.
ASX stocks that will benefit
I believe heavy equipment rental group Seven Group Holdings Ltd (ASX: SVW) is well placed to benefit from this 10-year pipeline of projects.
Another that could do quite well is the Downer EDI Limited (ASX: DOW) share price due to its exposure to civil engineering work.
Building supplies groups like the Boral Limited (ASX: BLD) share price and Adbri Ltd (ASX: ABC) are another group of likely beneficiaries.
Demand for building supplies will also be bolstered by the extra 10,000 places for new home buyers under the government's 5% deposit scheme.
