Note: The analyst behind this article holds shares of Strategy (MSTR).
Strategy (MSTR), the American firm that has positioned bitcoin (BTC) at the heart of its corporate strategy, has recently enhanced its financial offerings by launching a second Series A perpetual preferred stock, adding to its suite of capital market products.
The company is offering 8.5 million shares of this new instrument, termed Strife (STRF), priced at $85 each. This move aims to secure a total of $711.2 million for bitcoin acquisitions, a notable increase from the initial goal of $500 million. The sale concludes later on Tuesday. Previously, the firm’s launch of the preferred stock, Strike (STRK), brought in $563 million.
A perpetual preferred stock occupies a unique position in the capital hierarchy, bridging the gap between debt and equity. It typically offers dividends and enhanced price stability, making it attractive for investors seeking reduced volatility and more predictable income. Unlike common stockholders, those who possess preferred shares do not receive voting rights.
STRF is structured to provide a 10% annual dividend based on a $100 stated amount, with payments disbursed quarterly in cash. If Strategy fails to make a dividend payment, the outstanding amount will accrue at an additional 1% per year, up to a maximum dividend rate of 18%, incentivizing prompt payments.
Strategy retains the option to repurchase all STRF shares if less than 25% of the original shares remain or in specific tax scenarios. In such cases, investors would be entitled to the liquidation preference along with any unpaid dividends. Furthermore, should there be a “fundamental change,” shareholders have the right to compel the company to buy back their shares at the stated amount plus any accrued dividends.
Lower dividends from STRK
In contrast, STRK offers an annual dividend of 8% based on its $100 liquidation preference, although the effective yield diminishes as the price of STRK increases. Unlike STRF, STRK incorporates a conversion feature, enabling holders to exchange their preferred shares for common stock at a 10:1 ratio if the common share price hits $1,000, allowing for potential equity growth. Consequently, the new issuance behaves more like a fixed-income security, making it the less volatile option of the two.
While STRK might attract investors seeking a combination of yield and potential appreciation, STRF is clearly designed for those who prioritize income and capital stability. To sustain these dividend payments, Strategy will depend on a blend of operational cash flow, revenue from convertible debt offerings, and at-the-market (ATM) sales of its common stock.
The company has an active ATM program for STRK, recently acquiring 130 BTC, and has roughly $3.57 billion still available under the ATM capacity through its common stock, providing substantial flexibility to meet dividend obligations while pursuing its bitcoin accumulation goals.
On Monday, the company’s shares saw a rise of over 10%, by which time it had accumulated 506,137 BTC.