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MicroStrategy’s STRK Preferred Stock Explained: Funding the World’s Biggest Bitcoin Gambit

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Toghrul Aliyev
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Key Takeaways
  • MicroStrategy unveiled its Series A Perpetual Strike Preferred Stock (STRK) with an 8% cumulative dividend.
  • MicroStrategy’s preferred stock offering unlocks a new way to raise capital without immediate dilution.
  • Sensitivity to Bitcoin movements remains lower than typical MSTR shares, appealing to investors who prefer less volatility.

In early January 2025, MicroStrategy announced plans  to raise up to $2 billion through a perpetual preferred stock offering. The move is part of its ambitious 21/21 plan, which aims to raise $21 billion in equity and $21 billion in fixed-income instruments from 2025 to 2027.

According to the company, the capital would go toward strengthening its balance sheet and acquiring more Bitcoin (BTC).

MicroStrategy’s capital raise announcement for up to $2 billion in preferred stock. Credit: MicroStrategy

Later, on Jan. 27, 2025, MicroStrategy officially unveiled  its “Series A Perpetual Strike Preferred Stock,” initially planning to offer 2,500,000 shares at a $100 liquidation preference, or $250,000,000.

The announcement raises many important questions: Will this offering enhance or dilute shareholder value? And, perhaps, most importantly, what will this mean for the stock price and long-term viability of the company’s strategy?

As part of this report, we’ll walk through the proposed structure in detail and explore how the company addresses those concerns moving forward.

What Is Preferred Stock?

Preferred stock sits between common equity and debt in a company’s capital structure. Holders of preferred shares have priority over common shareholders when the firm pays dividends.

Bondholders, however, retain the highest claim in a liquidation scenario, placing preferred stockholders in a middle-ground position. With its balanced risk and reward profile, preferred stock has become a reliable option for banks and other corporations to secure steady capital.

Capital structure pyramid. Credit: CCN

A typical preferred security includes a set dividend rate based on the par value. For example, a $1,000-par-value security paying a fixed annual dividend of 5% translates to $50 in income each year. This dividend is usually distributed before any payments are made to common stockholders.

The board can suspend payment in extreme situations, although this tends to alarm the market and can damage the issuer’s access to financing. Some preferred issues contain “cumulative” features, ensuring that skipped dividends must eventually land in the holder’s hands.

Some prefer to view preferred stock as “equity that behaves like a bond.” Others see it as a special type of share that ranks second to creditors if things go wrong. Given its unique structure, it’s no surprise that firms hold it in high regard:

  • It can maintain stronger shareholder control by restricting or eliminating voting rights;
  • It can pave the way for a stable, long-term financing arrangement;
  • It often does not appear as a liability on the balance sheet, enhancing certain ratios and fostering additional capacity to issue debt or other obligations;
  • It is an attractive yield instrument with the added bonus of possible equity upside through conversion features.

Banking regulations sometimes consider certain preferred securities Tier 1 capital, which encourages banks to own them.

Tier 1 capital represents a bank’s core financial strength. It consists of high-quality assets like equity and certain preferred securities, both of which provide a buffer against financial risks and losses. This classification appeals to banks because preferred shares help meet regulatory requirements while offering stable returns.

Bank of America 2024 Q3 Report. Credit: Bank of America

Similarly, pension managers and insurance companies seek yield and appreciate steady dividends. MicroStrategy’s leaders appear to see an opportunity to access that large pool of institutional money.

Common stock is more volatile, so a company positioning itself as a quasi-Bitcoin investment might broaden its investor base by appealing to more risk-averse buyers. That approach can add diversity to the shareholder roster.

Differences From Common Stock

Common stockholders receive voting rights, allowing them to influence the company’s direction. They can also gain unlimited upside, if the share price rises. However, they face the greatest risk if the business struggles.

Adding to this uncertainty, dividends on common equity are not guaranteed. Boards have full discretion to declare, reduce, or skip these payouts altogether, though doing so risks reputational damage and potential loss of investor confidence.

Bonds vs. stocks. Credit: CCN

In contrast, preferred stock lacks voting rights most of the time, though special conditions can arise if the issuer defaults on dividend obligations. It provides a predictable payout that receives priority over common shareholders.

If the company liquidates, preferred holders will rank above common equity. However, bondholders, secured noteholders and other creditors will still sit in front of preferred investors, as we mentioned above.

Many prefer the potential synergy of convertible preferred stock. That setup blends stable dividends with the opportunity to convert shares into common stock at a predetermined price, often once the common share price meets or exceeds a specified threshold.

Bondholders buy convertible notes for a similar reason. The difference lies in the capital classification. A convertible bond is classified as debt, influencing the issuer’s leverage ratio, while convertible preferred stock typically counts as equity.

That nuance matters for MicroStrategy because the company aims to avoid inflating its official debt levels while still needing additional capital to buy Bitcoin.

Despite these advantages, Benjamin Graham, the father of value investing, remained skeptical of preferred stocks, saying :

“Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one.”

Graham acknowledged that preferred stocks could present opportunities in specific circumstances. He believed that when adversity pushed prices far below their intrinsic value, the risk-to-reward ratio could shift in favor of the investor.

In such cases, preferred stocks might offer strong returns relative to their flaws, but only if purchased at the right price and under the right conditions.

MicroStrategy’s leadership designed an offering that offsets the structural shortcomings Graham identified by providing competitive dividends and potential conversion features to enhance its appeal.

The Strategy

According to Fidelity, the plan is scheduled for launch on Jan. 30, 2025, involving a $250 million perpetual preferred stock issuance priced at $100 per share.

MicroStrategy IPO pricing date and offering details. Credit: Fidelity

Fidelity also reports an average annual yield of 7.55% (median 6.98%) across 397 preferred issuers, of which only two are crypto-focused—Investview Inc. (16.67%) and Hyperscale Data Inc. (12.79%).

Top preferred stocks with highest dividend yields. Credit: Fidelity

That said, MicroStrategy continues to pursue a different approach. The newly disclosed STRK structure reveals an 8% cumulative dividend. While this rate might seem high compared to typical corporate preferreds, it is lower than certain crypto-adjacent offerings.

An 8% yield arrangement meets all criteria for Michael Saylor and the team. It boosts capital, secures significant funds for Bitcoin accumulation, keeps interest costs manageable and offers a safety valve through share conversion.

It also entails about $80 million on each $1 billion raised, which MicroStrategy can manage quite sustainably. As of January 2025, the firm has only $34.6 million in annual debt service costs.

So, even with the added dividend obligations, the company’s overall financial load remains well within manageable limits, especially considering its ability to cover dividends through a combination of cash and stock. Multiplying these rounds is also likely manageable, especially if future conversions relieve the firm of perpetual dividends once MSTR’s stock price rallies.

Annual preferred dividend payments. Credit: CCN

Conversion Mechanics

Each STRK share is initially convertible into one-tenth (1/10) of a Class A common share, implying a $1,000 per share conversion price. Investors can convert within the third and final month of each quarter or if MicroStrategy calls the shares for redemption (e.g. if the outstanding STRK drops below 25% of the original issuance).

Dividend Details

  • Fixed at 8% cumulative and paid quarterly;
  • May be settled partly or wholly in Class A shares, priced at 95% of the one-day VWAP before payment;
  • Any unpaid dividends compound. Failing to pay dividends over multiple quarters grants holders the right to elect one or two board members after four or eight consecutive missed payouts.

The option to convert into common equity is a major draw for institutions with a bullish outlook on the stock. The attractive above-market dividend  further enhances this advantage, making the offering particularly appealing.

This step serves two purposes. First, the conversion price of $1,000 reduces the chance of near-term conversion and fosters stability for yield-focused holders. Second, it ensures that the transaction remains squarely in the equity category. A deeply out-of-the-money conversion option appears more like permanent equity than a disguised bond.

If the four-year Bitcoin cycle theory holds true, Bitcoin could experience a significant upside by the end of 2025, with potential prices ranging from $200,000 to $275,000. As a result, a rise in Bitcoin’s value could also lead to substantial gains in MicroStrategy’s stock price by the end of the year.

Thus, Q1 represents a solid opportunity for MicroStrategy to raise funds and purchase Bitcoin at lower price levels.

The Power Law Model. Credit: Bitbo, Giovanni Santostasi

Such a scenario would not only benefit the company and its shareholders but also impact the preferred stock’s conversion terms. The stock price threshold might be met earlier than expected, if Bitcoin’s surge drives MSTR’s stock higher.

This would allow holders to convert the preferred shares into common stock earlier, reducing MicroStrategy’s long-term dividend burden while offering preferred stockholders significantly greater value.

As the share price appreciates, the potential equity upside becomes far more lucrative than the fixed dividend, even though it dilutes existing shareholder value in the process.

How the Offering Impacts Shareholder Value

In the short run, such an arrangement supports shareholder value because the preferred shares do not dilute the existing equity base. Over time, however, a conversion to common stock is likely.

Alternatively, the scenario could differ if MicroStrategy opts to pay dividends in common stock, introducing dilution sooner but alleviate cash flow pressures.

However, management plans to deploy the proceeds toward Bitcoin. More Bitcoin on the balance sheet boosts the value per share, which helps offset concerns about eventual dilution.

Bitcoin Per MSTR Share. Credit: saylorcharts.com

The stock price should rise alongside an expanding BTC treasury, aided by the premium investors award to MicroStrategy’s strategy.

Sudden downturns may appear, but a three to five-year perspective favors growth if the company remains committed to acquiring Bitcoin. A complete reversal would prompt a different assessment, though that outcome seems unlikely, given current leadership.

Disclaimer: The information provided in this article is for informational purposes only. It is not intended to be, nor should it be construed as, financial advice. We do not make any warranties regarding the completeness, reliability, or accuracy of this information. All investments involve risk, and past performance does not guarantee future results. We recommend consulting a financial advisor before making any investment decisions.
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Toghrul Aliyev

Toghrul Aliyev is a senior cryptocurrency research analyst who began his journey in crypto in 2021. It all started with a Reddit post that went viral, leading to a writing position while he was still in medical school. As he learned more about crypto, he became deeply interested in it and decided to focus entirely on this field after completing his medical degree and becoming a doctor. Toghrul specializes in thorough research, always aiming to find details others might miss. He also has a strong understanding of stocks, real-world asset tokenization, and related areas. He is skilled in Python and SQL, which he uses to improve his crypto analysis through data analytics and data science. When he’s not working, Toghrul enjoys sports, hiking, reading philosophy, such as Seneca's works, and playing story-driven video games.
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