The Shifting Investment Landscape: Adjusting Your Strategy in Trump 2.0

We are now officially in the Trump 2.0 era, bringing changes that investors must take seriously.

This new administration may negatively impact the returns of those who simply invest in an index fund like the SPDR S&P 500 ETF Trust (SPY) and hope for the best.

This period signals a stock picker’s market, where careful choices about individual dividend-paying stocks will be crucial. SPY holders, tied to the S&P 500 index, face challenges. As investing options shift, SPY does not allow for agile moves in buying or selling, which can cause losses when poor-performing stocks offset gains from winners.

Already, we see evidence of these developments. Allow me to highlight five stocks to consider selling after Trump’s inauguration, including SPY. Additionally, I will discuss one unrelated stock that you might want to sell due to management’s recent, unfortunate decisions.

Food Stocks to Consider Selling in the Trump 2.0 Era

Starting with RFK Jr., President Trump’s nominee for the Health and Human Services department, his potential confirmation is a troubling sign for food companies like General Mills (GIS) and The Kraft-Heinz Co. (KHC). We’ve long criticized Kraft-Heinz for its outdated strategies. Fast-food giants such as McDonald’s (MCD) are also facing difficulties.

Given this backdrop, it’s unsurprising that shares of these three companies have declined since Election Day, even as the S&P 500 index has risen. Recovery does not seem imminent.

Food Giants Struggle Amid New Administration Influence

As advocates for dividend growth, we have steered clear of these three companies. For instance, General Mills experienced a slow dividend increase, only rising by one cent over the last year:

General Mills’ Dividend Growth Stumbles

McDonald’s has received attention for moving away from DEI programs. Although that may resonate with the new administration, the reality is that MCD distributes a staggering 73% of its free cash flow (FCF) as dividends, far exceeding my 50% safety threshold. This heavy payout limits future dividend increases.

Kraft-Heinz may have a tempting 5.6% dividend yield, but such a yield follows a significant decline in stock value over the last ten years. Remember, share prices and dividend yields move inversely.

Moreover, Kraft-Heinz previously cut its dividend in early 2019, which pushed the share price down further. This showcases the “reverse dividend magnet,” where reduced dividends also negatively impact stock prices:

KHC’s “Reverse Dividend Magnet” Sinks Its Stock

With revenue growth stagnating for almost a decade and dividends comprising 65% of the last year’s FCF, there’s little prospect for KHC to escalate its dividend or boost share prices.

It’s wise to reconsider holding SPY, as all three discussed stocks are included in “America’s ticker.” Looking beyond food and pharmaceuticals, investors should also be cautious of S&P 500 dividend payers with heavy exposures to China.

China Tariffs Will Impact These Two Toymakers

One thing is clear: higher tariffs are on the horizon, and companies relying heavily on Chinese production are at risk. I’m particularly concerned about toy manufacturers Mattel (MAT) and Hasbro (HAS).

These companies face risks not only from increased tariffs but also shifting demographics, as declining birth rates affect demand. According to the Centers for Disease Control and Prevention, the U.S. recorded fewer than 3.6 million births in 2023, the lowest since 1979.

Both companies deserve acknowledgment for reducing their production dependencies on China. In May of last year, Mattel announced it would close a plant there. Its CEO, Ynon Kreiz, noted in the first-quarter 2024 earnings call that around 50% of its products still originate from China, a figure he expects to decrease over time.

For Hasbro, about 40% of its products come from China, with plans to cut that to 20% over the next four years. However, altering supply chains is a complex and lengthy process.

Importantly, Hasbro derives a large part of its revenue—the majority of 67% in Q3 2024—from its consumer-products division, which includes traditional toys and games, even as online engagement rises.

Recent reports reveal Hasbro’s Q3 revenue dropped by 9%, excluding the sale of its eOne movie and TV business, and linked to a 10% fall in consumer-products sales.

Despite a current dividend yield of 5%, it has not increased since before the pandemic:

Hasbro’s Dividend Growth Stalls

As for Mattel, it has not paid a dividend since 2017 and is therefore not a suitable option for dividend-focused investors.

Overall, the landscape is challenging for both companies, with no signs indicating improvement. Potential future sanctions related to China may further depress their stock values, which are significantly lower than they were on Election Day. This poses concerns not only for MAT and HAS but also for SPY investors.

A Final Recommendation on Vail Resorts

The last stock to consider selling isn’t directly linked to Trump 2.0. However, Vail Resorts (MTN) has recently experienced a spike in dividend yield to 4.8%, which might catch your attention.

Vail Resorts (MTN) owns renowned locations like Whistler Blackcomb in British Columbia and Breckenridge, and while it may seem tempting, the future outlook also warrants caution.