Strategy’s New Financial Instrument: Strife (STRF)
Disclaimer: The analyst who authored this piece holds shares in Strategy (MSTR).
Strategy (MSTR), a prominent U.S. company that has embraced bitcoin (BTC) as a cornerstone of its corporate strategy, has recently diversified its financial offerings by launching a second Series A perpetual preferred stock. This new instrument, named Strife (STRF), is set to significantly bolster its capital resources dedicated to bitcoin acquisitions.
The company is poised to raise a substantial $711.2 million by selling 8.5 million shares of STRF at a price of $85 each, surpassing its initial target of $500 million. This offering is expected to close later today. This follows Strategy’s earlier preferred stock issuance, Strike (STRK), which raised $563 million in its initial round.
Perpetual preferred stocks, such as STRF, occupy a unique position in the capital structure, sitting between debt and common equity. They typically offer dividends and exhibit greater price stability, making them an attractive option for investors who are focused on lower volatility and more predictable returns. However, unlike common stockholders, holders of preferred shares do not possess voting rights.
STRF is designed to provide a 10% annual dividend based on a $100 stated amount, with dividends disbursed quarterly in cash. If Strategy fails to meet a dividend payment, the amount will accrue at an additional 1% per year, capping at an 18% maximum dividend rate. This structure incentivizes timely payments to investors. Additionally, Strategy retains the option to redeem all STRF shares if fewer than 25% of the original shares remain or if certain tax-related events occur. In such cases, shareholders would receive their liquidation preference along with any outstanding dividends. Furthermore, in the event of a “fundamental change,” shareholders have the right to compel the company to repurchase their shares at the stated amount plus any accrued dividends.
Understanding STRK’s Dividend Structure
In contrast, STRK offers a more modest 8% annual dividend based on its $100 liquidation preference, although the effective yield decreases as STRK’s market price increases. Unlike STRF, STRK includes a conversion feature that allows shareholders to convert their preferred shares into common stock at a 10:1 ratio, provided the common share price reaches $1,000. This feature presents an opportunity for potential equity appreciation, making STRK a more hybrid security.
While STRK may attract investors seeking a combination of yield and potential capital growth, STRF is clearly tailored for those who prioritize income stability and capital preservation. To ensure the sustainability of these dividend payments, Strategy intends to leverage its operational cash flow, proceeds from convertible debt offerings, and at-the-market (ATM) share sales of common stock. Strategy also maintains an open ATM program for STRK and has recently acquired 130 BTC, with approximately $3.57 billion remaining in its ATM capacity through common stock. This positions the company with considerable flexibility to meet its dividend obligations while continuing its strategy of bitcoin accumulation.
As of recent reports, the company’s shares experienced an increase of over 10% on Monday, reflecting the growing confidence in its holdings, which now stand at 506,137 BTC.
