MicroStrategy (MSTR), which recently changed its name to “Strategy,” has launched its
new convertible preferred stock on the Nasdaq stock exchange with a hefty 9% dividend yield.
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The shares, which trade under the ticker symbol “STRK,” were at $85.50 by noon on Feb. 6, up from the deal price of $80 set last week. The company, the world’s largest corporate owner of Bitcoin (BTC), issued 7.3 million shares of the 8% preferred stock as part of a plan to diversify its funding sources as it continues to add to its crypto hoard.
The deal raised $563 million for the company after commissions to the underwriting groups and other expenses. Strategy originally planned to sell the preferred stock at its face value of $100 per share but soft initial demand prompted a price cut to $80.
Typically, a preferred stock is one that entitles the holder to a fixed dividend payment, and whose payment takes priority over that of common-stock dividends.
Big Yield
The yield offered by the technology company’s preferred stock is much higher than the typical yield of about 5% that’s offered on most preferred stock. Yields on junk bonds average 7.50% currently. The preferred shares from Strategy also come with a conversion feature, enabling holders the right to swap each share they own for a tenth of a share of the company’s MSTR common stock.
The big dividend yield isn’t being covered from conventional earnings because Strategy’s software business generates little free cash flow and its Bitcoin holdings yield nothing. However, the company has huge assets in reserve to cover the dividend paid on the preferred stock. Strategy currently owns about 471,000 Bitcoins that are valued at $46 billion.
Strategy said recently it had 750 years of dividend coverage for the preferred stock payout of $8 per share annually, or about $58 million per year, based on the value of its current BTC holdings. The company said it intends to pay the dividend in cash to preferred stockholders.
Is MSTR Stock a Buy?
The stock of MicroStrategy currently has a consensus Strong Buy rating among 10 Wall Street analysts. That rating is based on 10 Buy recommendations issued in the past three months. There are no Hold or Sell ratings on the stock. The average MSTR price target of $547.80 implies 65.87% upside from current levels.
