Strategy’s latest massive bitcoin purchase offers insight into its evolving funding model

Strategy (MSTR) has recently utilized its perpetual preferred stock, STRC, as the primary method for accumulating bitcoin, signaling a significant change in its funding strategy. This marks a departure from its historical reliance on common stock sales.

Preferred Stock Dominates Bitcoin Acquisition

In the past week, Strategy announced the purchase of 22,337 BTC. The company raised $1.18 billion through its STRC perpetual preferred stock issuance, which is equivalent to approximately 16,800 BTC at an average price of $70,000 per bitcoin. This amount significantly surpasses the $396 million raised via its common stock at-the-market (ATM) program, which was previously the main tool for building its bitcoin reserves, now totaling 761,068 BTC.

Addressing Dividend Burdens and Capital Costs

The recent $1.18 billion STRC issuance, with its current 11.5% dividend rate, implies annual dividend obligations of roughly $135 million. This has pushed the company's total annual dividend burden to over $1 billion. To manage these obligations, Strategy has allocated approximately $2.25 billion in USD reserves, providing a financial buffer against increasing capital costs.

Strategic Shift Away From Common Stock Dilution

With Strategy's common stock experiencing a decline of over 70%, the company appears motivated to support its share price without further dilution. Consequently, common equity may be employed more selectively, particularly when the multiple to net asset value (mNAV) is substantially above 1 or when building USD reserves. This suggests a reduced dependence on common stock sales and a greater emphasis on STRC, which avoids issuing new common shares.

Potential Dividend Increase for STRC

Early indicators suggest potential pricing pressure for STRC. The preferred stock has traded below its $100 par value for three consecutive days following its March 15 ex-dividend date. Given its one-month volume-weighted average price is below par, Strategy might consider increasing the dividend by an additional 25 basis points to bolster its price.