📈 Strategy Shifts Capital Raise to Preferred Stocks as Common Share Issuance Loses Allure
In a strategic pivot, Strategy (NASDAQ: MSTR) has moved away from issuing common shares to fund its Bitcoin acquisitions, opting instead for preferred stock offerings. This shift aims to raise capital without diluting existing shareholders’ equity.
🔍 Why the Shift?
The decision comes as the premium between Strategy’s share price and its multiple net asset value (mNAV) narrows. Issuing common shares becomes less attractive when the market capitalization closely aligns with the value of its Bitcoin holdings. By utilizing preferred stock offerings, Strategy can raise funds more efficiently and continue its Bitcoin acquisition strategy without impacting common shareholders.
💰 Preferred Stock Offerings: STRK, STRF, and STRD
Strategy has launched several preferred stock offerings:
- STRK: A perpetual preferred stock with a strong lifetime return of 35%.
- STRF: Another perpetual preferred stock offering, with a lifetime return of 24%.
- STRD: A newly priced 10% Series A Perpetual Stride Preferred Stock, offering a fixed 10% annual return to long-term investors.
These offerings allow Strategy to fund its Bitcoin purchases without increasing debt or diluting common shareholders.
📉 Declining Dividend Yields
Analyst Jeff Walton notes that the effective dividend yields of STRK and STRF have steadily declined from about 10%, even though the yield on the benchmark U.S. 10-year Treasury has remained relatively constant at 4.5%. This decline is due to the increase in the preferred stock prices, making them more attractive in a stable rate environment.
🔄 Future Outlook
Strategy plans to reengage the at-the-market (ATM) program on its common stock if the share price rises significantly, particularly if it exceeds twice the mNAV. This would allow for dilutive issuance at a premium. However, the primary mechanism for funding dividend obligations on the preferred shares remains the common stock ATM, depending on market conditions.
This strategic shift underscores Strategy’s commitment to its Bitcoin acquisition strategy while balancing shareholder interests and capital efficiency.
