Breaking Down Strategy’s Recent Preferred Stock Offerings

Strategy, the rebranded MicroStrategy and the world’s largest corporate Bitcoin holder, made headlines earlier today as it unveiled its latest preferred stock offering, STRF. The company launched a public offering of 5,000,000 shares of its Series A Perpetual Strife Preferred Stock (ticker: STRF), subject to market conditions. The new offering aims to raise capital for general corporate purposes, with a significant portion earmarked for Bitcoin acquisitions and working capital. The new STRF offering introduces a hybrid security designed to appeal to investors seeking lower volatility compared to Strategy’s volatile common stock (MSTR).

The STRF shares will be sold at market price. Strategy offers a liquidation price of $100/share. The liquidation price offered by the company is the amount per share that preferred shareholders are entitled to receive in the event of the company’s liquidation or dissolution, after satisfying debts but before distributing anything to common shareholders. It represents the preferred stock’s claim on assets.

The STRF stock’s dividends compound at an initial rate of 10% annually plus 1% for unpaid amounts, escalating by 1% per period up to a maximum of 18% per annum until settled. The dividend is payable quarterly in arrears starting June 30, 2025, if declared by Strategy’s board of directors. Assuming the full offering is executed as planned, the company would take on a potential $50,000,000 annual dividend obligation.

This is Strategy’s second preferred offering that offers a dividend. Earlier this year the company issued 7.3 Million of Series A Perpetual Strike Preferred Stock, STRK, offering a fixed annual dividend of 8%. This issuance netted the company $563.4 million in proceeds and represents a potential total annual dividend obligation of approximately $58,400,000.

Strategy’s potential cumulative annual dividend obligation from the STRK and STRF offerings, if both are fully executed as outlined, is approximately $108.4 million ($58.4 million for STRK and $50 million for STRF). This figure assumes full issuance and declared dividends. Actual payments depend on board decisions and financial health, making the obligation conditional rather than fixed. The actual dividend amount to be paid may also be higher if dividends go unpaid and triggers rates to escalate from the initial 10%.

The nature of these instruments has sparked a debate online regarding Strategy’s ability to pay the dividends, methods through which it could do so, and what happens if the company doesn’t generate the necessary cash to pay down the preferred stock dividends offered.

First, it’s important to note that, based on the offering details, Strategy has no obligation to issue or pay the dividends. They are all subject to board approval. While it is an option available to the company, not declaring or paying the dividends could impact the share prices significantly.

Second, we can contrast the potential dividend obligations with the company’s operating cashflows from its software business. Strategy’s Q4 2024 earnings report notes $126.6 million in total revenue for the year, but this likely includes some Bitcoin-related adjustments post-adoption of FASB ASU 2023-08 (effective January 1, 2025), which mandates fair value accounting for Bitcoin. Excluding Bitcoin gains, the software business’s contribution to cash flow is likely in the range of $100–150 million annually, based on historical adjusted EBITDA figures. For further context, these were $80-$100 million in 2022-2023, per earlier filings.

If we assume that Strategy’s software business is generating ~$100-$150 million in operational cash flow contributions, the fact that they have just taken on a potential $108.4 million dividend commitment has prompted some investors to ask “what happens if they need to come up with more cash to pay the dividend?”. The answer is that a) the company is not obligated to declare or pay the dividends and b) it could resort to issuing more common shares or selling bitcoin to raise the cash it needs to pay the dividends.

Since Strategy’s first preferred offering, STRK, started trading on February 1st 2025, the stock is up +6%. In that same period, Strategy’s common stock, MSTR, has traded down -16.44%, signalling that investors like the potential yield and protection that the preferred offering provides. Importantly, Strategy’s common shares and preferred shares have both outperformed bitcoin and the Blackrock Bitcoin ETF (IBIT) since February 1st 2025, with spot bitcoin and IBIT being down -19% in the same period.