Strategy Shifts Capital Raise to Preferred Stocks as Common Share Issuance Loses Allure

Strategy (MSTR) has recently shifted its funding strategy for Bitcoin (BTC) acquisitions. Instead of utilizing its at-the-market (ATM) equity program for common shares, it has opted for its two perpetual preferred stocks, STRK and STRF. This strategic shift is primarily driven by the narrowing premium between MSTR’s share price and its multiple net asset value (mNAV), representing the difference between its market capitalization and the value of its Bitcoin holdings.

Issuing common shares via ATM is most advantageous when executed at a significant premium to the underlying asset value. With the share price trading closer to the Bitcoin asset value, the attractiveness of common share issuance diminishes. This approach allows MSTR to acquire more BTC without diluting existing shareholder equity.

The most recent BTC purchase of 1,045 coins was funded using proceeds from both STRK (59.18%) and STRF (40.82%) ATM offerings. These preferred stocks have demonstrated strong performance, with lifetime returns of 35% for STRK and 24% for STRF. This dual approach provides greater flexibility in Bitcoin accumulation while preserving upside potential for common stock investors.

Analyst Jeff Walton highlights another contributing factor: the declining effective dividend yields of STRK and STRF. Despite a stable benchmark U.S. 10-year Treasury yield of approximately 4.5%, the preferred stock yields have fallen due to rising stock prices. This bond-like behavior enhances their appeal in a stable rate environment.

MSTR is expected to resume its common stock ATM program if the share price appreciates considerably, particularly if it surpasses twice the mNAV. This would create sufficient room for dilutive issuance at a premium. While the common stock ATM remains the primary mechanism for funding preferred stock dividend obligations, MSTR retains the flexibility to utilize the preferred stock ATMs, depending on prevailing market conditions. This adaptable funding strategy demonstrates a nuanced approach to balancing Bitcoin accumulation with shareholder value preservation.