Strategy Inc. faces growing debate regarding the financial underpinnings of its Perpetual Stretch Preferred Stock (NASDAQ: STRC), which currently offers an 11% annual dividend payout. Economist Peter Schiff voiced skepticism on Thursday, questioning how the company is able to fund such generous dividend payments given reported financial difficulties. Schiff's concerns underscore increasing scrutiny of Strategy's business model, centered on leveraging its Bitcoin holdings to generate income streams.
Michael Saylor, founder of Strategy Inc. (NASDAQ: MSTR), responded publicly by highlighting the appeal of the STRC preferred stock as a yield-bearing instrument. He emphasized on X (formerly Twitter) that the preferred shares provide an annual dividend yield of 11%, paid monthly in cash. To support his point, Saylor shared comparative volatility data, indicating that STRC's historical volatility stands at approximately 6%. This is notably lower than the volatility of Strategy’s primary Class A common shares and the iShares Bitcoin Trust ETF (NASDAQ: IBIT), which is the largest Bitcoin exchange-traded fund globally. According to Saylor, the preferred stock "delivers the first 11% of BTC ARR [annual recurring revenue] with about 85% of the volatility engineered out," positioning STRC as a less volatile, high-yield alternative linked to Bitcoin exposure.
The launch of STRC occurred last year, with the aim to offer investors a stable income product by issuing preferred stock whose proceeds are dedicated to purchasing additional Bitcoin. This recursive approach means Strategy continuously allocates capital raised through equity and debt issuance to increase its Bitcoin holdings, attempting to amplify returns in line with Bitcoin price appreciation.
However, this strategy and its sustainability have drawn criticism. Peter Schiff, a prominent economist and vocal Bitcoin skeptic, challenged the viability of funding the 11% dividends. He asserted that "MSTR is losing money" and posed a direct question: where exactly is the necessary cash flowing from to support these yield payments on their preferred stock instruments? Schiff's comments call into question the company’s current liquidity and underlying profitability.
Strategy's common shares often function as a leveraged proxy for Bitcoin. Because the company issues equity and debt instruments to buy more BTC, its stock performance closely tracks Bitcoin price movements but with additional leverage risk. As Bitcoin prices have declined, the company's shares have suffered disproportionately. Over the past six months, MSTR's stock price has dropped by more than 50%, considerably underperforming Bitcoin’s direct value trajectory.
At present, Strategy Inc. holds Bitcoin assets valued at nearly $59 billion, while its overall market capitalization stands at approximately $47.5 billion, leading to a scenario where the stock trades at a discount to the net asset value of its Bitcoin holdings. This discrepancy highlights investor concerns about the risks embedded in the company's leveraged balance sheet and operational model.
In defense of the business framework, Michael Saylor has argued that the company is engineered to endure severe Bitcoin price declines—specifically, drawdowns in the range of 80% to 90%—while continuing to operate effectively and maintain dividend payments. He maintains that as long as Bitcoin appreciates at a modest compound rate of 1.25% annually, Strategy can sustain its preferred stock dividend indefinitely while simultaneously enhancing shareholder value.
Strategy Inc. is expected to release its fourth-quarter financial results next Thursday, an upcoming update that could provide further clarity on operational cash flows and dividend coverage amid recent market turbulence.
Market data from Benzinga Pro shows Bitcoin trading at $82,387, reflecting a 6.42% decrease over the previous 24 hours. Concurrently, Strategy’s shares declined 0.13% during after-hours trading on Thursday, following a 9.63% drop in the regular session to close at $143.19. On a year-to-date basis, the stock has retreated 5.77%, indicating a sustained weaker performance trend.
Benzinga’s Edge Stock Rankings reveal that MSTR exhibits a weak price trend across short, medium, and long-term periods, compounded by a low Value ranking. This suggests broader investor caution towards the security despite the high dividend yield offered by STRC.
In summary, Strategy Inc. remains engaged in a complex balancing act: utilizing Bitcoin appreciation to generate income and dividend payments against the backdrop of increased volatility, market corrections, and questions about operational profitability and sustainable cash flow generation. The ongoing debate highlights the challenges inherent in employing Bitcoin as a foundational asset within traditional corporate finance models, particularly when leveraged and tied to high-yield instruments.