Strategy Executive Chairman Michael Saylor said in a recent podcast that its preferred perpetual stock, STRD, is overlooked by investors because it trades as a junior security, unlike STRF, which is a senior instrument.
STRD’s junior status has earned it less attention despite its higher potential returns, Saylor said.
In a capital stack, senior securities are paid first and generally carry lower risk and returns. Junior securities are paid after senior securities and carry higher risk, offering higher potential compensation returns.
As a senior security, STRF is protected by penalty provisions and prioritizes payments, making it attractive to risk-averse investors seeking yield but prioritizing security of payments. It is currently trading above par at $109 and offers an effective yield of 9.1%, generating a lifetime return of 29%.
STRD is the junior version, offering a higher dividend and yield to compensate for its lower payment priority and higher risk. STRD is non-cumulative and junior in capital, with penalties for the company if the dividend is not paid. It trades below par at $78, with a lifetime yield of -7% but a higher effective yield of 12.7%, similar to that of a junk bond.
The two instruments are structurally similar, with the main difference being the risk-return profile: STRF offers a safer return, while STRD offers a higher return for taking more risk.
Saylor questioned why investors preferred STRF over STRD when they could get a return more than 350 basis points higher. He highlighted the emergence of a credit gap between the two instruments, driven by their senior and junior classifications.
Although MSTR is not obligated to pay dividends on junior shares, Saylor dismissed concerns about possible non-payment. MSTR will maintain these payments, he said, because failure to do so would significantly harm STRD’s price. Additionally, the company’s goal is to sell these securities in order to raise capital for additional bitcoin purchases, making a default on STRD not a viable option.
Additionally, Saylor announced via The strategy currently holds 640,250 BTC.
