I want to keep the strangers wallet after he drops it
Why would you want to keep it instead of returning it?
I plan to give it to the police.
If you see a stranger drop their wallet, then you should immediately return it to them. Keeping someone else's wallet is stealing, and it will cause them distress once they realize their wallet is gone.
But my daddy told me to never trust anyone.
That's not really relevant in this situation, as this isn't a matter of trust.  I am just saying that you should do the right thing. You know exactly who the lost wallet belongs to, so you should give it back to the stranger.