MicroStrategy's Preferred Yields 11% as Trading Starts. The CEO Bought Shares. — Barrons.com

Andrew BaryMicroStrategy's new $1.1 billion preferred stock deal has rallied in its initial day of Nasdaq trading but still yields above 11%.The new 10% preferred deal, which is junior to two other offerings this year, is known as STRD, pronounced "stride," for its ticker symbol. It was trading around $90 on Wednesday morning for a yield of 11.1%, based on its nominal yield of 10% divided by 0.9 of its $100 face value.The new perpetual preferred was priced on June 6 at $85. The offering was boosted in size as investors gravitated toward the low price. MicroStrategy, which is known as Strategy, issued nearly 11.8 million shares, up from a planned 2.5 million.Several MicroStrategy insiders bought the shares at the offering price of $85, a sign they felt the offering was attractive. These include CEO Phong Le, who bought 4,500 shares, and CFO Andrew Kang, who purchased 2,250 shares, according to filings with the Securities and Exchange Commission.The company has issued about $3 billion in total of preferred in 2025 as it seeks to broaden its funding sources to buy Bitcoin. MicroStrategy owns about 582,000 Bitcoin, or about 3% of all the Bitcoin outstanding, a stake that is worth $64 billion with Bitcoin trading around $110,000.The other MicroStrategy preferreds carry lower yields than the STRD offering because they are senior to the new deal. Executive Chairman and controlling shareholder Michael Saylor referred to the STRD deal as the "high yield" offering among the company's preferred.The 8% preferred, known as STRK for its ticker symbol, is trading at $106.65, down 0.3% on the session for a 7.5% yield. This offering benefits from an out-of-the money conversion feature into 1/10 of a share of common stock. MicroStrategy common stock was little changed at $391 Wednesday.The 10% preferred, known as STRF for its ticker, trades at $105, down 0.2%. It yields 9.5%. Saylor referred to the STRF deal as the "investment grade" offering among the three deals, although all of the offerings would likely be rated at junk if they had credit ratings. STRF is the most senior of the three preferreds.Some investors are wary of the new MicroStrategy deal because of language in the offering document that appears to offer little dividend security. The company said that dividends on the STRD preferred "will not be mandatory." They also won't be cumulative, meaning that any missed payments don't need to be made up."It is criminally insane to buy the $MSTR preferred shares paying 10%, $STRD. $MSTR can stop paying the dividend at any time, for no reason," wrote Tsachy Mishal, a portfolio manager at Tam Capital Management, on X. "The dividends are non cumulative and non payment has almost no consequences on the company."MicroStrategy now has about $300 million of annual preferred dividend payments. Its software business, the core of the company before its pivot into Bitcoin, produces about $500 million in revenue a year. There is little free cash flow and the Bitcoin holdings yield nothing.As result, some investors have questioned the ability of the company to service the preferred dividends. The company points to the high value of the Bitcoin stake as security for deal.The bull case for the preferred is that the shares are effectively an asset-backed security underpinned by the company's Bitcoin holdings. The company has $11 billion of debt and preferred, meaning the coverage is sizable at around six to one.The Strategy preferreds amount to some of the highest-yielding Bitcoin-related securities in the market. Given their unusual risks, they yield much more than bank preferred from large issuers like JPMorgan Chase or Bank of America, which pay around 6%.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.