MicroStrategy Preferred Stock Jumps in Initial Trades. It Yields 10.75%. — Barrons.com

Andrew BaryIt turns out that insiders at MicroStrategy made a smart move in buying the company's cheaply priced new preferred issue last week.Shares of the new 10% preferred stock, known as Strife, began trading Wednesday under the ticker STRF on the Nasdaq at $93, up nearly 10% from the offering price of $85. The preferred stock now yields 10.75%, down from about 11.75% at the offering price.MicroStrategy, which does business as Strategy, sold 8.5 million shares of the new preferred, its second preferred-stock deal this year, as part of a program to diversify its funding sources. It continues to add to its Bitcoin holdings, which total more than 500,000 coins worth about $45 billion with the cryptocurrency now trading around $88,000. The deal raised $711 million after fees.MicroStrategy CEO Le Phong bought 6,000 shares of the new preferred and two other company executives snapped them up as well as the price was cut to $85 from a planned $100 a share, according to Form 4 filings with the SEC. Company insiders haven't bought MicroStrategy common shares since 2022, but they correctly viewed the new preferred as attractively priced.One reason for the lack of insider common-stock buys could be that the common shares trade at about double the value of the company's Bitcoin holdings, Barron's estimates. MicroStrategy is the largest corporate Bitcoin holder.Michael Saylor, the company's chairman and controlling shareholder, called the new preferred a "unique, high-performance fixed-income preferred" in a presentation posted online before the deal was priced.MicroStrategy also has about $700 of 8% convertible preferred stock outstanding that trades on the Nasdaq under the ticker STRK. It now trades at $86.60 for a yield of 9.3%.The new preferred stock yields more because it lacks a common-stock conversion feature that adds to the value of the STRK securities, even though at current market levels, it is very much out of the money .MicroStrategy common stock is down 3% Wednesday to $331.50. The common stock would have to more than double for it to be economic for STRK preferred holders to convert their shares into common. The conversion ratio is one-tenth of a share of common stock for each preferred share.The MicroStrategy preferreds, now totaling nearly $1.5 billion, have plenty of critics. They say the company has no earnings to pay the dividends since its software business isn't profitable on a GAAP basis and its Bitcoin holdings yield nothing.But Saylor points to the company's asset-coverage ratio for its total debt and preferred of about $10 billion. The company's Bitcoin is worth more than four times the total debt and preferred, offering a large cushion for preferred and debt holders.MicroStrategy could sell some Bitcoin to pay its preferred dividends. Preferred is a senior form of equity but junior to a company's debt.MicroStrategy preferred shares now yield much more than bank preferreds. The largest preferred ETF, the iShares Preferred & Income Securities, now has a yield of about 6%, while the typical junk bond yields around 7%. MicroStrategy common stock has no dividend.The MicroStrategy preferred offers a lower-risk, high-yielding way to play Bitcoin. It stands to rise in price if Bitcoin gains ground, while throwing off cash at the same time.Write to Andrew Bary at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.