How STRK Is Outperforming While MSTR Struggles in a Market Downturn

STRK Climbs 3% Since Launch While MSTR Drops 20% – What’s Driving the Divergence?

Strike (STRK), the preferred stock issued by Bitcoin investment firm Strategy (MSTR), has outperformed its common stock counterpart since its February 5 debut, rising 3% while MSTR has tumbled more than 20%.

Preferred stocks like STRK offer a blend of equity and debt characteristics. Investors holding STRK have priority over common shareholders when it comes to dividend payouts and claims on company assets in the event of liquidation. STRK is also a perpetual security, meaning it has no expiration date, yet it pays a fixed dividend, making it functionally similar to debt.

This structure generally makes preferred stocks less volatile than common shares, a trend that is evident in STRK’s performance. According to Strategy’s internal data, STRK has only a 26% correlation with MSTR and a slight negative correlation of -7% with Bitcoin (BTC). STRK’s volatility stands at 49%, notably lower than BTC’s 60% and MSTR’s volatility, which exceeds 100%.

Strategy’s $21 Billion ATM Offering and Its Implications

Last week, Strategy announced an at-the-market (ATM) offering of up to $21 billion in STRK shares, allowing the company to sell stock at market prices over time. If the entire issuance is sold, Strategy would owe an estimated $1.68 billion in annual dividend payments.

To meet this financial obligation, the company has a few options: It could issue more common stock, though this is unlikely given MSTR’s declining price, or it could rely on operating cash flow or proceeds from newly issued convertible debt.

Dividend Yield and Conversion Potential

STRK currently offers an 8% annual dividend yield based on its $100 liquidation preference. However, with STRK trading at $87.45, its effective yield rises to approximately 9%, reflecting the inverse relationship between price and yield.

Additionally, STRK includes a conversion feature that allows each share to be exchanged for 0.1 shares of MSTR if the common stock reaches $1,000. Given that MSTR closed at $262.55 on Wednesday, this option remains distant but could provide additional upside if MSTR experiences a significant price recovery.

STRK’s Appeal and Potential Risks

With its fixed dividend payments and lower volatility, STRK presents a more stable alternative to MSTR for investors seeking income rather than speculative gains. However, the company’s large ATM issuance could dampen upside potential, similar to the impact seen in MSTR’s common stock when new shares were issued.

While STRK provides a steady yield and reduced exposure to market swings, investors must weigh these benefits against the potential dilution from Strategy’s ongoing issuance plans.