Strategy's New Preferred Stock STRD Debuts at 11.1% Yield on Nasdaq

Strategy, a prominent enterprise software company, recently issued a new series of preferred stock, STRD, valued at 1100 million dollars. The stock made its debut on the Nasdaq, showcasing a robust performance on its first day of trading. The preferred stock, STRD, is a permanent 10% dividend stock, issued at a price of 85 dollars per share with a face value of 100 dollars. The market trading price rose to 90 dollars in the early morning of Wednesday, resulting in a current actual yield of 11.1%. Despite the market's enthusiastic response, STRD is the lowest-ranked among the three preferred stocks issued by Strategy this year.

Initially planned to sell 2.5 million shares, the issuance was expanded to approximately 11.8 million shares due to high investor demand for the high yield. Company executives, including CEO Phong Le and CFO Andrew Kang, actively participated in the subscription, with Le purchasing 4,500 shares and Kang purchasing 2,250 shares. This move was seen as a vote of confidence from the management in the product.

Strategy has raised approximately 30 billion dollars this year through the issuance of preferred stocks, primarily to expand its Bitcoin holdings. As of now, the company holds around 582,000 Bitcoins, accounting for approximately 3% of the total circulating Bitcoins globally. At the current price of 110,000 dollars per Bitcoin, the value of these holdings is estimated to be 640 billion dollars.

Michael Saylor, the executive chairman and major shareholder of the company, described STRD as a "high-yield" product. In contrast, the two earlier issued preferred stocks, STRK and STRF, have lower yields and are considered relatively safer investments due to their higher priority.

Despite the attractive yield, STRD carries significant risks. The prospectus clearly states that the dividends for this preferred stock are "non-mandatory" and "non-cumulative," meaning the company is not obligated to pay dividends if it chooses to suspend them, and there is no requirement to make up for missed payments.

This clause has raised concerns in the market. Tsachy Mishal, the portfolio manager at Tam Capital Management, openly criticized the purchase of such high-yield STRD, stating, "Buying this 10% yield STRD is a crazy move. Strategy can stop paying dividends at any time without any reason, and there are almost no legal consequences for not paying."

Currently, Strategy needs to pay approximately 3 billion dollars annually in preferred stock dividends. Its traditional software business generates around 5 billion dollars in annual revenue, with virtually no free cash flow. While the substantial Bitcoin assets have a high book value, they do not generate actual cash income.

Some market participants are skeptical about the company's ability to sustain preferred stock dividends in the future. In response, the company emphasizes that the high value of its Bitcoin assets can serve as collateral.

Supporters argue that these preferred stocks are essentially "Bitcoin-backed asset securitization products," supported by the company's 640 billion dollars in Bitcoin holdings. Even with the current total debt and preferred stock of approximately 110 billion dollars, the "asset coverage ratio" remains high at 6 times.