The Potential DST Advantage in a Flat Market: Generating Income When Growth Feels Elusive

The Flat Market Threat to Client Income

You know the conditions well. The S&P 500 is trading near historic price-to-earnings multiples, leaving little room for multiple expansion. Interest rates remain in a higher-for-longer environment, limiting bond price appreciation and compressing upside in fixed income. GDP growth forecasts are slowing, and while inflation has moderated, it continues to erode real returns.

In this environment, many client portfolios face a form of stagnation; asset prices that barely move, coupled with limited sources of yield. As a registered investment advisor, your challenge is clear: help clients generate consistent, tax-efficient income without adding unnecessary volatility. That requires looking beyond the traditional equity-and-bond playbook.

Why Flat Markets Demand Alternative Income Strategies

Flat markets don’t always arrive with a dramatic crash; sometimes they emerge quietly and persist for years. While an extended period of muted equity returns is not a certainty, history shows it can happen. Consider the 13-year grind from 2000 to 2013, when the S&P 500’s cumulative total return relied heavily on dividends, or the 1966–1982 stretch when inflation-adjusted returns were minimal.

Today’s market conditions carry similar characteristics: high valuations mean limited room for multiple expansion, while the Fed’s policy stance suggests that interest rates may not fall quickly enough to boost bond prices significantly. Traditional dividend equities can face payout variability, and fixed income portfolios may be exposed to reinvestment risk.

In this setting, it can be prudent to incorporate income sources designed to provide predictable cash flow regardless of equity market direction. Delaware Statutory Trusts (DSTs) are one such option.

DSTs: Structurally Designed for Consistent Distributions

DST income is typically driven by long-term leases with creditworthy tenants, helping decouple their cash flow from daily market volatility. When equity prices drift sideways or bond yields compress, DSTs can offer a stream of distributions with greater visibility.

There is also a meaningful tax benefit: when DSTs are typically acquired through a 1031 exchange, gains from the sale of appreciated real estate can be deferred, keeping more capital invested. In low-growth environments, every basis point can matter, and tax deferral may help preserve total return potential.

For clients ready to step away from active property management, DSTs offer the ability to transition from hands-on landlord responsibilities to passive ownership while maintaining potential income and deferring taxes.

Positioning DSTs as a Timely 2025 Allocation

While market predictions are never certain, the current setup suggests that 2025 could still be in the early stages of a flat-market cycle. The Fed’s measured pace on rate cuts means borrowing costs, and, by extension, cap rates, are likely to remain relatively attractive.

Real estate valuations have already adjusted from their 2022 highs, creating opportunities for experienced DST sponsors to acquire high-quality assets. In certain sectors, supply-demand imbalances continue to support rental stability. Manufacturing essential assets (MEAs), for example, can offer durable tenant demand and long-term lease commitments. Similarly, well-positioned logistics facilities may benefit from persistent e-commerce and supply chain trends.

For income-seeking clients, these sectors, and the DST structures that hold them, can deliver a blend of cash flow stability and potential downside resilience.

The Advisor’s Strategic Role in DST Income Planning

Your role is not simply to identify attractive income sources, but to integrate them into a balanced, risk-aware allocation. DSTs can be positioned in multiple ways:

• Reallocate from idle or underperforming assets. For clients with excess cash or stagnant equity positions, DSTs can help put capital to work in income-generating real estate.
• Hedge against yield compression. In fixed income portfolios vulnerable to falling yields, DSTs may provide contractual rent payments that are less sensitive to market rate shifts.
• Capture “tired landlord” capital. Clients ready to exit active real estate ownership can use a 1031 exchange to transition into a DST, preserving tax deferral while eliminating management duties.
• Enhance a diversified income sleeve. DSTs can complement private credit, structured notes, or opportunistic bonds as part of a broader alternative income strategy.

The key is to present DSTs as a structural solution that supports the client’s income, tax, and estate planning objectives, not as an isolated product.

Final Thoughts

Flat markets test an advisor’s ability to deliver stability when capital appreciation feels scarce. For clients, confidence in their plan often hinges on visible, predictable income.

By incorporating Delaware Statutory Trusts into a broader income strategy, you can offer clients a vehicle that may help produce steady cash flow, preserve capital through tax deferral, and reduce reliance on traditional yield sources.

In a market that offers few easy wins, strategic use of DSTs can help position you not just as a portfolio manager but as a trusted guide through uncertain market cycles.