Will MicroStrategy’s Preferred Stock STRF, Issued at a Discount of $85, Attract Retail Investors with a 10% High Yield?

Strategy, the Bitcoin development company (formerly MicroStrategy), announced on March 20 the issuance of a permanent preferred stock with the code STRF. A total of 8,500,000 shares were issued, significantly higher than the previously estimated 5 million shares, but still issued at a discounted price of $85. The transaction is expected to be completed by March 25.

Strategy’s New Bitcoin Blueprint: How STRF Expands the Bond Market for Retail Investors

STRF Preferred Stock Issuance Conditions

The newly launched STRF, although named as a permanent preferred stock, appears to have an equity nature. However, in reality, it targets the bond market, which has a total market value of up to 300 trillion USD. The conditions are as follows:

• Code: STRF
• Issuance Price: $85
• Face Value (also the Redemption Price): $100
• Interest Rate: 10% annually, with quarterly payments made on March 31, June 30, September 30, and December 31. The first payment will be made on June 30, 2025.
• Compounded Dividends: If the dividend for a particular period is not paid, the unpaid portion will accumulate as compounded dividends. The annual interest rate will increase by 100 basis points (1%) per quarter on top of the original 10%, with a maximum interest rate of 18% per year.

Can Retail Investors Invest in STRF?

Unlike typical corporate convertible bonds, which have limited issuance and are typically reserved for professional investors, Strategy has made STRF available for retail investors. The shares will be listed on the secondary market, allowing any investor with a securities account to purchase them. At an issuance price of around $85, investors can easily make small investments at a price near $100, which is a clever approach!

However, this product has no maturity date, meaning there is no guarantee of being able to redeem the principal at $100 at a specific time, which differentiates it from traditional bonds. Moreover, the issuance at a discount of $85 increases the yield from the original 10% to 11.8%, making the returns more attractive.

Note: The 10% dividend is calculated based on the $100 face value, meaning an investor can receive $10 in annual dividends. However, if the investor’s cost is $85, the yield is effectively 10 ÷ 85 = 11.8%. Please note that dividends for U.S. stocks are subject to a 30% tax rate, so the actual yield will be reduced to around 7% to 8%.

Once the STRF transaction is completed on March 25, it is expected to enter the secondary market by the end of the month.

How Well Did STRK Preferred Stock Perform?

Strategy’s previously issued convertible preferred stock, STRK, was offered at a discount price of $80 at the end of January. Its price peaked at $100.25 but has since fluctuated around $85 due to the decline in Bitcoin prices and the company’s launch of the higher dividend STRF. The first dividend for STRK will be paid on April 1.

Risk Warning

Cryptocurrency investments carry a high level of risk. Prices may fluctuate dramatically, and you may lose your entire principal. Please carefully assess the risks.