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 | | | | STRK: High Yield with Bitcoin Upside |
| Every investor on the planet would like to have some exposure to the possibility of Bitcoin continuing to go way up in price like it has over the past 15 years.
Who wouldn’t want to own an asset that could double or triple… or even go up 150 times from current levels (as some have predicted)?
On the other hand, not everyone wants to deal with the extremely high volatility of Bitcoin, which keeps many investors on the sidelines.
Since the start of the year, Bitcoin has declined from an all-time high over $109,000 to a year-to-date low just above $76,000—a 30% swing. As we write, Bitcoin now trades around $82,000.
Sharp moves like this are a lot for many investors to handle—even if they perceive a long-term benefit.
But what if there were a way to get exposure to long-term upside scenarios in Bitcoin without having to endure this extreme volatility?
And what if one could get decent returns out of such an investment even if Bitcoin does not perform exceptionally well?
Realizing that extreme volatility is not for everyone, Strategy (the Bitcoin Treasury Company formerly known as MicroStrategy) has created a solution that many investors are likely to find quite appealing.
Issued for the first time in February, this security is referred to by the company as Strike and trades under the ticker STRK. It can be purchased in brokerage accounts just like you would purchase shares of any other stock.
With several unique features, STRK is attracting a lot of interest from various corners of the investment world.
Although STRK can be purchased like a share of common stock, it is actually what is known as preferred stock. We offer a fuller explanation below, but preferred stock is basically a form of stock that in many ways resembles a bond.
STRK, like all preferred stock, offers a fixed dividend payout, similar to how bonds offer fixed coupon payments.
But STRK is also convertible into common stock, specifically the shares of Strategy, which still trade under the ticker MSTR.
Because of the way it is structured, an investor would only choose to convert his or her shares of STRK into MSTR if shares of MSTR went way up from current levels.
But this ability to convert is perpetual, meaning it never expires. This means long-term investors have plenty of time for MSTR shares to appreciate to the point where the conversion feature starts to become highly valuable.
So, for starters, what investors get in STRK is a security that, at the moment, offers a dividend yield above 9% with quarterly payments (which is nothing to scoff at).
And if a surge in the price of Bitcoin translates into a surge in the price of MSTR, they also get the option to convert their STRK shares into shares of MSTR at a price that could be well below its trading price.
No free lunch, of course
While the high dividend yield and conversion option are clearly appealing, there are naturally going to be certain risks that investors in STRK need to understand.
The biggest risk, in our view, is a severe and sustained decline in Bitcoin, which could damage Strategy’s ability to make dividend payments.
We explain and address these risks in detail below.
But for investors who are inclined to believe the long-term trajectory of Bitcoin is generally up—and believe Strategy will successfully avoid getting into a situation of severe financial distress—then an investment in STRK might make a lot of sense.
In our view, the risk/reward profile of STRK is compelling for investors with a long time horizon who share our confidence in Bitcoin as well as the ability of Strategy to manage its balance sheet responsibly over time. |
| Understanding STRK
The official name of the Strike security is less catchy than its nickname: 8.00% Series A Perpetual Strike Preferred Stock.
While STRK may sound fairly complicated (and there are indeed a lot of wrinkles and risk factors to consider, which we will get into), the security has two main characteristics.
First, if you buy it, you can generally expect to receive a $2.00 per share quarterly dividend (with the exception of the very first pro-rated dividend payable at the end of March).
The share price of STRK is approximately $85 (as of 3/18/2025), so this implies an approximately 9.4% annual dividend yield.
Second, the shares are convertible at any time to 0.1 shares of MSTR (based on a conversion price of $1,000 per MSTR share, which is subject to adjustment in the future if there are stock splits or other events).
At current prices, MSTR shares, which are trading just under $300 per share, would have to increase in value by over 200% for the conversion to make financial sense. But there is no expiration date to this “perpetual” conversion right.
So, over time, if the market price of MSTR goes up considerably, the conversion right should become much more valuable.
Why would someone invest in STRK?
The starting point for understanding why someone might buy shares of STRK is that he or she believes in the long-term viability and success of Strategy, the issuer of the security.
This logically requires an investor also to believe in the long-term viability and success of Bitcoin, the core asset upon which Strategy is based.
Strategy began life as a software company but has since evolved into a Bitcoin Treasury Company. Although it still has a software operating company, the primary corporate purpose now is to hold and accumulate Bitcoin.
An investor who has confidence in Bitcoin may conclude there is a high probability Strategy will remain in a position to make its promised dividend payments to STRK shareholders without interruption indefinitely into the future.
On the other hand, if an investor does not have confidence in the long-term performance of Bitcoin or believes there is a strong chance it ultimately collapses, STRK is unlikely to be seen as an attractive investment.
9% in perspective
Outside of distressed debt, there are not many investments that have an income profile comparable to STRK.
The current 9.4% dividend yield ad infinitum is a handsome return—more than double the 4.6% return now available on 30-year Treasuries.
This yield also exceeds the average yield on high yield (below investment grade or “junk”) bonds. The commonly used ICE BofA US High Yield Index Effective Yield indicates that the yield on the average high yield bond is just over 7%.
High yield bonds also tend to mature within 7 to 10 years of issuance, whereas STRK could in theory pay dividends in perpetuity.
From a total return perspective, a return above 9% may also be seen as an acceptable long-term return for stock market investors.
Over the past 20 years, the S&P 500 Index has delivered an annualized rate of return of approximately 10%—a result which has generally exceeded expectations.
So the dividend stream currently offered by STRK—if an investor concludes that it is sustainable over the long-term—is quite compelling in and of itself.
The upside scenario
In addition to the dividend, STRK offers upside potential through the conversion feature.
The conversion option is currently way “out of the money,” meaning investors would lose money if they converted their shares of STRK for 0.1 shares of MSTR at a price of $1,000.
To exercise the option now, an investor would be exchanging a security that can be sold in the open market for around $85 for something less than $30 worth of MSTR shares. No one would do this.
But MSTR shares could rise in the future. It is not only highly volatile, but it is a stock that tends to amplify the returns of its core asset—Bitcoin.
If Bitcoin were to gain in value significantly, MSTR shares could rise even more. Bitcoin and MSTR do not trade with perfect correlation, but MSTR is generally seen as a vehicle that offers investors leveraged exposure to the price of Bitcoin.
MSTR shares have traded at a sharp premium to its underlying Bitcoin holdings since the company began to execute its strategy of issuing debt and equity securities to buy more Bitcoin. The current market capitalization of MSTR is nearly twice the value of its Bitcoin holdings. |
|  | MSTR vs. Bitcoin (Total Return - Past 24 Months) |
| How high can Bitcoin go?
Strategy’s founder and Executive Chairman Michael Saylor has made eye-popping predictions about the future value of Bitcoin.
In his base case, Bitcoin reaches $13 million by 2045, versus current levels around $82,000 per coin.
He is not alone in thinking that Bitcoin has the potential to continue to appreciate at high rates of return as it becomes more widely adopted and takes an even larger share of the world’s financial assets.
Many Bitcoin bulls believe the asset has the potential to go parabolic as Bitcoin takes a leading role in the global monetary architecture of the future.
Many Bitcoin investors are especially excited about the implications of the recent announcement of a Bitcoin Strategic Reserve. This could set in motion a global scramble among nation-states to take down their own sliver of the Bitcoin network (before prices skyrocket). |
|  | Trish’s Full Interview with Michael Saylor |
| The rise of AI agents is another argument put forward by Saylor and others as to why Bitcoin, which already has a market capitalization over $1.7 trillion, still has enormous upside.
AI agents are autonomous programs, powered by artificial intelligence, that may in the future engage in financial transactions on the internet. The expectation is that they will naturally use digital currencies, like Bitcoin, rather than fiat money.
Bitcoin, MSTR and STRK
To illustrate how Bitcoin upside could accrue to the benefit of STRK shareholders, let’s assume MSTR shares simply perform in line with Bitcoin in the future.
If the price of Bitcoin eventually triples from current levels and approaches the $250,000 level, MSTR shares would be at a level (around $850 per share) where converting STRK into MSTR makes sense (at current prices of STRK).
To the extent MSTR shares do rise meaningfully in the future, what will likely happen is the conversion option embedded in STRK will become increasingly more valuable.
So STRK shares could see significant upside as MSTR shares get closer to the $1,000 per share breakeven point or “strike price.”
STRK could even potentially trade at a premium to the conversion value. This would likely happen once the conversion value surpasses the $100 per share “liquidation preference” value of STRK upon which the 8% dividend is based.
STRK shares could eventually become worth more than their conversion value because investors would then have the benefit of participation in further MSTR upside, while still enjoying the protection of the dividend stream if shares of MSTR were to decline in price later.
The closer MSTR shares get to $1,000, the more valuable STRK’s perpetual conversion feature becomes. This means STRK shareholders would start to benefit from a rise in the price of MSTR well before it reaches the $1,000 conversion price.
As STRK rises in price, the dividend yield will shrink, but dividend itself will remain the same. |
| | What is preferred stock?
Preferred stock is a form of stock in a company that has characteristics of both common stock and bonds. Shares of preferred stock (sometimes referred to as “prefs”) offer a fixed dividend yield, which creates a bond-like cash flow stream.
Preferred stock is different from bonds, however, in that the company that issues the stock (the issuer) is not necessarily obligated to make payments.
Preferred stock also does not represent an ownership claim to the value of the company the way common stock does. Its value resides in the expectations of investors to receive future dividends.
In a liquidation scenario, such as a corporate bankruptcy, shareholders of preferred stock are typically entitled to par value. However, preferred stock is typically “junior” to debt within the capital structure, which means there may not be any resources left after any debt claims are addressed.
Perpetual preferred stock means there is no fixed date upon which the stock will be retired. Investors can expect to receive dividends in perpetuity (with exceptions like a “change of control,” where the company is taken over and the shares may get redeemed.)
Convertible preferred stock means owners of the shares can convert them into common equity at pre-determined exchange rates.
Cumulative preferred stock means any dividends that are not paid for some reason accumulate with the expectation that they will be paid out later.
Shares of STRK are perpetual, convertible and cumulative. |
| | So how risky is this?
It clearly sounds great to get a 9% yield ad infinitum plus participation in the potential appreciation of MSTR shares… so what’s the catch?
The key risk that investors need to consider is the possibility that the board of Strategy will be unwilling or unable to pay preferred dividends as expected.
The company is not legally obligated to pay dividends, although to the extent it does not pay a dividend, dividends accumulate (and compound at the dividend payment rate) until they are eventually paid out.
Strategy may also elect to pay the dividend in the form of MSTR shares, in lieu of cash, with the number of shares determined by a formula linked to recent trading prices.
Preferred stock is typically used by companies in the financials, utilities and real estate sectors, in some cases because it provides a way of raising debt-like capital without actually incurring debt, which could affect leverage ratios.
Historical default rates on preferred stock tend to be quite low—in the 1% to 2% range. While issuers have legal flexibility to skip preferred dividend payments, in practice this is really only done when the company is experiencing financial hardship.
The Strategy preferred program contemplates up to $21 billion of future preferred stock issuance. The company sees this as a long-term funding vehicle for its Bitcoin accumulation strategy.
Preserving trust is critical
One of the main reasons any issuer will make dividend payments on preferred shares, to the extent it is able to, is to maintain the trust of the market.
Issuers who fail to make dividend payments run the risk of cutting off access to capital going forward. Similar to a country defaulting on its debt obligations, trust will be lost, perhaps permanently.
So Strategy, like any other preferred issuer, has extremely strong incentives to make the dividend payments as planned.
Given the importance of future capital raising activity to Strategy’s business plan, maintaining investor confidence is of paramount importance.
In our view, it is reasonable for an investor to assume that to the extent Strategy has the financial resources to make dividend payments going forward, it will.
This is similar to an individual under financial pressure continuing to pay his bills until he no longer can, at which point the decision is made to accept the severe negative consequences of destroying one’s credit rating.
Strategy is unique
As the first and by far the largest of a small number of pubic companies whose corporate strategy revolves around the accumulation of Bitcoin, Strategy is unique among preferred stock issuers.
As mentioned, these issuers tend to be more established and conventional businesses.
Traditional approaches to understanding default or dividend interruption risk do not really apply to Strategy, a business which is based on the value of Bitcoin on its balance sheet rather than operating cash flows.
Strategy intends to fund future dividend payments through continued issuance of securities to the pubic (equity, debt, preferred stock, etc.). The proceeds of these securities offerings will also be used to buy more Bitcoin.
As Strategy sells more securities to buy more Bitcoin and service whatever interest payment or dividend obligations it takes on, the growing stockpile of Bitcoin on its balance sheet functions as the collateral that is used to entice investors to buy these securities.
As we interpret Michael Saylor’s pubic comments, Strategy does not intend ever to sell Bitcoin but will rather use the value of the corporate balance sheet to raise capital on a continuous basis.
What investors in STRK can arguably hang their hat on is that the value of Bitcoin on Strategy’s balance sheet far exceeds its interest and dividend obligations.
Saylor made this point recently at the Economic Club of New York, where he argued that the company’s debt and preferred stock are misunderstood by the market—and offer much more security than the pricing of these securities suggests. |
| | I think that our instruments ought to be investment grade. We’re 42 times overcollateralized on our senior convertible bond, and it trades with a credit spread of 500 basis points. It ought to be 25 basis points. So we’ve got to educate the banks, the credit ratings agencies, the big fixed income investors. That’s going to take time. - Strategy Executive Chairman Michael Saylor (3/14/2025) |
| | Saylor’s basic argument is that Strategy’s Bitcoin holdings far exceed the cash outlays that its various debt and preferred stock holdings require.
The company has more than $40 billion worth of Bitcoin on its balance sheet (not to mention an equity market capitalization of nearly twice that amount).
The pace at which Strategy will issue debt and preferred stock in the future is uncertain, but the company has told investors that its long-term leverage target is 20% to 30% of its Bitcoin holdings.
This means it will strive to limit its total indebtedness (defined as pure debt instruments plus preferred stock) to 20% to 30% of the value of the Bitcoin on its balance sheet.
As of the company’s fourth quarter 2024 earnings presentation, the Bitcoin leverage ratio was closer to 15%.
It comes down to Bitcoin
For Strategy to find itself in a position where its obligations to bondholders and preferred stockholders become difficult to meet, it would likely require a severe and sustained collapse of the Bitcoin asset base.
The key risk one seems to be bearing in owning STRK therefore is a drastic collapse in the price of Bitcoin that would threaten the company’s ability to issue more securities or otherwise make required payments to investors.
Moderate downside in Bitcoin could put pressure on STRK shares by bringing Strategy incrementally closer to the point of financial distress (while making the conversion feature less valuable).
But, in our view, an actual dividend interruption would probably only happen under extreme circumstances—in other words, a very severe collapse in the price of Bitcoin.
Anyone considering an investment in STRK should understand why they are getting the high dividend yield along with upside potential in MSTR.
These rewards are compensation for bearing the risk of severe and potentially permanent losses if Bitcoin were to sustain a catastrophic and enduring collapse.
While a severe collapse in Bitcoin is perhaps the chief risk, STRK could also fail as an investment if Strategy mismanages its balance sheet.
The company has expressed a commitment to maintaining “intelligent leverage,” but its ability to meet its financial obligations will ultimately be a function of how well the company manages financial risk in the context of Bitcoin volatility.
To simplify, one needs to have confidence that Saylor and his team will do a good job keeping the company out of trouble in the future. |
| The verdict
STRK represents an appealing investment proposition for investors who believe Bitcoin is likely to rise in value over time, perhaps substantially, and unlikely to fall precipitously.
If Bitcoin does not fall substantially going forward, Strategy will likely continue to have ample resources to meet its obligations to debt and preferred stock holders. The dividend payments should be safe.
If the price of Bitcoin soars, the price of MSTR will likely follow. STRK shareholders will likely participate in that, especially as MSTR shares approach the $1,000 conversion price.
If the price of Bitcoin collapses—and this sends Strategy into a scenario of financial distress—STRK shareholders could experience significant downside, along the lines of what Bitcoin and MSTR investors might also face.
STRK is an innovative and unusual investment opportunity. Investors need to make up their own mind as to the long-term probabilities associated with the different scenarios playing out.
Our favorable opinion of STRK is based on the following main premises:
(1) We are prepared to accept the risk of a severe and prolonged decline in Bitcoin that could temporarily or even permanently impair the investment. An investor can manage this risk by appropriately sizing an investment in STRK, along with other Bitcoin-related investments.
(2) We have confidence in Strategy’s ability to manage Bitcoin volatility over time.
(3) We think there is a reasonable chance that Bitcoin rises significantly over time and that the MSTR share price rises alongside it. STRK offers an interesting form of exposure to this upside scenario.
For these reasons, we view STRK as an attractive Bitcoin-related security for long-term investors with high risk tolerance. |
| | ADDITIONAL DETAILS
Our analysis of STRK is based on information provided by Strategy in the supplemental prospectus dated March 10, 2025. Investors may wish to consult this document, which provides an exhaustive review of all the terms and risk factors.
Dividend treatment
Dividends paid to preferred stock investors are often eligible for “qualified dividend” treatment, which means they potentially get taxed at lower federal rates.
Legal disclaimers within the STRK prospectus indicate the possibility under certain circumstances that STRK dividends will not receive such favorable treatment.
Investors may therefore choose to hold STRK within tax-advantaged retirement accounts, which may render the dividend tax treatment issue irrelevant.
Redemption scenarios
Within the prospectus, there were a number of scenarios described, including a potential change of control of Strategy or a potential adverse tax determination, in which the company would have the ability to repurchase STRK at the “liquidation preference” price ($100 per share) or, in certain cases, recent trading prices (if higher).
STRK shareholders will not necessarily lose money in these scenarios, but they could be forced to exit the investment.
Equity offerings
One important protection available to STRK shareholders is that if Strategy sells common stock, it will use proceeds available from the sale of stock to pay any unpaid dividends to STRK investors.
This suggests that so long as MSTR has the ability to raise equity in the capital markets, dividend payments to preferred shareholders will be prioritized. |
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