Why Strategy's Preferred Stock STRK Surges Amid MSTR's Decline
STRK has increased by 3% since its February debut, contrasting with MSTR's over 20% loss.
Key Highlights:
- Strategy’s preferred stock, STRK, boasts a 9% dividend yield and exhibits lower volatility than MSTR or Bitcoin.
- STRK features a 10-to-1 conversion option if MSTR shares reach $1,000.
- The vast $21 billion ATM issuance may influence STRK’s potential, akin to its effect on MSTR stock.
Disclaimer: The analyst who generated this report owns shares of Strategy (MSTR).
Strategy’s Preferred Stock Overview:
STRK was introduced on February 5 and is currently 3% above its launch price, while MSTR has dropped by over 20%.
As a hybrid of equity and debt, STRK carries a fixed dividend and has no maturity date, making it more stable than common stock, evidenced by its lower volatility.
According to Strategy’s dashboard, STRK has a 26% correlation with MSTR and a negative 7% correlation with Bitcoin (BTC). Its volatility is 49%, contrasted with Bitcoin’s 60% and MSTR’s over 100%.
Recently, Strategy unveiled a plan for a $21 billion ATM (at-the-market) offering for STRK, allowing for the sale of stock at prevailing market prices. If all shares are sold, the company would incur an annual dividend obligation of approximately $1.68 billion.
The circumstances surrounding this will likely necessitate either selling common stock, which appears unlikely due to current share challenges, or drawing from operational cash or convertible debt funds.
STRK provides an 8% annual dividend yield based on a $100 liquidation preference and, at a current price of $87.45, suggests an effective yield approaching 9%. As seen with debt instruments, increases in STRK prices reduce yields and vice versa.
Moreover, STRK allows conversion into 0.1 shares of common stock at a 10-to-1 ratio when MSTR stock hits or exceeds $1,000. With Strategy stock closing at $262.55, significant appreciation would be necessary for this option to activate, presenting further possible benefits beyond STRK dividends.
As a stable income-generating option with promising growth potential, STRK offers a more secure investment. Still, the impressive ATM issuance could influence these prospects similarly to how it has affected MSTR’s market performance.
