Key Takeaways
- • Strategy's preferred stock "Stretch" (STRC), a hybrid security with both stock- and bond-like features, carries a current yield of 11.5%, according to Investopedia's reporting.
- • Stretch is designed to trade at $100 and Strategy adjusts its monthly dividend rate up or down to maintain that peg, but the instrument is backed by Strategy itself rather than Treasuries or cash equivalents.
- • Strategy holds 738,731 bitcoin, recently valued at around $53 billion, plus a cash reserve of over $2 billion intended to cover debt and preferred dividends.
- • Institutional holders including Fidelity, Vanguard, Capital Group and BlackRock's iShares have bought the preferred issues, per Yahoo Finance data cited by Investopedia.
- • S&P Global affirmed Strategy's "B-" credit rating with a "stable outlook" in December, and the prospectus gives Strategy sole discretion over the payout rate.
Summary
Strategy, chaired by Michael Saylor, has marketed a set of preferred issues that Investopedia describes as hybrid securities combining stock- and bond-like features. Four of them trade on the Nasdaq, nicknamed "Stretch" (STRC), "Stride," "Strife" and "Strike" after their tickers. Stretch is the most prominent. The securities pay a regular dividend, resembling bonds, but holders rank below creditors in the capital structure, resembling equities. Investopedia reports a current yield of 11.5% on Stretch, while Strategy's common stock has been roughly halved over the past year as crypto markets weakened. Saylor said on social media that Stretch "is for everyone."
Fans have compared Stretch to a stablecoin, since it is designed to trade at $100 and Strategy adjusts its monthly dividend rate to defend that level. Investopedia notes key differences, however. Unlike dollar-pegged stablecoins such as Circle's USDC, which is backed by short-term Treasurys, Stretch is backed by Strategy itself, including its software business, its bitcoin holdings and a cash reserve of over $2 billion. That reserve is intended to cover debt and preferred dividends but can be used for other purposes at Strategy's discretion. The stated yield also exceeds that of some investment-grade preferred issues, which pay 6% to 7%.
Institutional demand has been significant. According to Yahoo Finance data cited by Investopedia, funds from Fidelity, Vanguard, Capital Group and BlackRock's iShares have bought the preferred issues seeking income. The preferred sales raised $2.5 billion for Strategy in July and several hundred million dollars more this year through ongoing sales, funding further bitcoin purchases.
The prospectus, as quoted by Investopedia, gives Strategy sole and absolute discretion over Stretch's payout rate and permits issuance of additional preferred stock ranking equally with STRC. The filing also states that the company "may abandon" its effort to keep the security at $100, and warns that the trading price could fall if the market expected a larger dividend increase than Strategy delivers. S&P Global affirmed Strategy's "B-" rating with a stable outlook in December, indicating an expectation that the company will keep managing debt, paying preferred dividends and maintaining market access. Investopedia observes that Strategy has incentive to proceed carefully given its institutional base, and that preferred yields generally move inversely to perceived risk.
Fans have compared Stretch to a stablecoin, since it is designed to trade at $100 and Strategy adjusts its monthly dividend rate to defend that level. Investopedia notes key differences, however. Unlike dollar-pegged stablecoins such as Circle's USDC, which is backed by short-term Treasurys, Stretch is backed by Strategy itself, including its software business, its bitcoin holdings and a cash reserve of over $2 billion. That reserve is intended to cover debt and preferred dividends but can be used for other purposes at Strategy's discretion. The stated yield also exceeds that of some investment-grade preferred issues, which pay 6% to 7%.
Institutional demand has been significant. According to Yahoo Finance data cited by Investopedia, funds from Fidelity, Vanguard, Capital Group and BlackRock's iShares have bought the preferred issues seeking income. The preferred sales raised $2.5 billion for Strategy in July and several hundred million dollars more this year through ongoing sales, funding further bitcoin purchases.
The prospectus, as quoted by Investopedia, gives Strategy sole and absolute discretion over Stretch's payout rate and permits issuance of additional preferred stock ranking equally with STRC. The filing also states that the company "may abandon" its effort to keep the security at $100, and warns that the trading price could fall if the market expected a larger dividend increase than Strategy delivers. S&P Global affirmed Strategy's "B-" rating with a stable outlook in December, indicating an expectation that the company will keep managing debt, paying preferred dividends and maintaining market access. Investopedia observes that Strategy has incentive to proceed carefully given its institutional base, and that preferred yields generally move inversely to perceived risk.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.