Understanding perpetual strike preferred stocks: Strategy’s latest offering explained

What is the preferred stock?

In a company’s capital structure, preferred stock sits between common equity and debt. Preferred stockholders get priority over common shareholders for dividend payments, but bondholders still have the highest claim in a liquidation. Preferred stock is a reliable financing tool for banks and corporations seeking stable capital.

Preferred shares typically have a fixed dividend rate based on their par value. For example, a $2,000 par value security with a 10% annual dividend yields $200 per year, distributed before any payments to common shareholders. 

While boards can suspend dividends in extreme cases, such as financial distress, regulatory issues or restructuring, doing so may unsettle the market and affect the issuer’s access to financing. Some preferred stocks include a cumulative clause, ensuring that missed dividends are eventually paid to shareholders.

Often described as “equity behaving like a bond,” preferred stock offers strategic advantages:

• It allows companies to maintain more substantial control by limiting voting rights, supports long-term financing and enhances financial ratios without appearing as a liability on the balance sheet. 
• Additionally, it provides attractive yields and potential equity upside through conversion features. These advantages can help companies, including those with crypto-linked strategies, appeal to a broader range of investors.

Unlike common stock, which offers voting rights and unlimited upside but comes with high risk and uncertain dividends, preferred stock provides predictable payouts that take priority over common shareholders. Although preferred holders typically lack voting power, they gain a stronger position in liquidation.

There are two main types of preferred stocks: perpetual and non-perpetual. 

• Perpetual preferred stocks: They don’t have a maturity date, meaning that the issuing company will continue to pay dividends indefinitely as long as it is in business. 
• Non-perpetual preferred stocks: These have a maturity date when the holder is paid the face value of the stock.

Did you know? On Feb. 6, 2025, MicroStrategy rebranded as Strategy, underscoring its Bitcoin commitment, and changed its logo to a Bitcoin symbol.

Perpetual strike preferred stocks explained

Perpetual strike preferred stocks are a type of preferred equity that offers ongoing dividend payments without a maturity date, often featuring conversion options or “strike” prices for potential future equity conversion.

Here is a breakdown of what it involves:

• Perpetual: This means that the preferred stock has no maturity date. The issuer is not obligated to redeem the stock after a set period, allowing it to exist indefinitely, unless the issuer decides to buy it back or redeem it later.
• Strike: This term typically refers to the price at which an option can be exercised, but in the context of preferred stock, it might be used to describe the “strike” price at which the stock can be converted into common stock or other securities, similar to convertible preferred stock. However, the specific context of the term “strike” might vary based on the particular agreement or financial product.
• Preferred stock: Preferred stock is a type of equity security with a higher claim on the company’s assets and earnings than common stock. Preferred shareholders generally receive dividends before common shareholders and may have other rights or protections. However, preferred stockholders usually do not have voting rights in the company.

The exact structure can vary depending on the terms defined by the issuing company.

Strategy’s perpetual strike preferred stocks explained

Based in Virginia, United States, Strategy has evolved from an enterprise analytics software company to a Bitcoin (BTC) treasury enterprise. Formerly MicroStrategy, the company rebranded as Strategy in Feb. 2025. The company and its co-founder, Michael Saylor, have become synonymous with Bitcoin. Michael Saylor has been using various financing methods to fund Bitcoin acquisitions. 

Even though Strategy held a substantial profit of $8 billion at the end of 2024, the company made plans to secure additional funding in the billions to further its acquisition of Bitcoin. In its third-quarter report for 2024, Strategy announced its “21/21” plan, designed to generate $42 billion over three years, intending to use these funds to purchase even more Bitcoin. The plan involves a two-pronged approach to fundraising, aiming to secure $21 billion through the issuance of equity and an additional $21 billion through fixed-income securities.

Strategy’s focus on accumulating Bitcoin began in 2020. The company has executed a series of strategic purchases totaling $9.9 billion, consistently expanding its Bitcoin holdings.

The company announced its offering of 8.00% Series A Perpetual Strike Preferred Stock (STRK) on Jan. 30, 2025, and the shares were officially issued on Feb. 5. These shares of preferred stock are currently being traded on the Nasdaq stock exchange. Holders of the perpetual strike preferred stock can convert their shares into shares of Strategy’s class A common stock.

The offering comprises 7,300,000 shares of 8.00% Series A Perpetual Strike Preferred Stock at $80.00 per share. Strategy intends to use the net proceeds from the offering for general corporate purposes, including acquiring Bitcoin and working capital.

Convertible preferred stock, classified as equity rather than debt, allows the company to raise funds without affecting its leverage ratio. This structure offers investors stability through dividends, allowing them to convert shares into common stock at a predetermined price if the stock appreciates.

Strategy structured its preferred stock offering to mitigate common drawbacks by ensuring competitive dividends and conversion opportunities. This approach enhances investor appeal while securing the capital needed for further Bitcoin purchases. By leveraging preferred stock’s unique characteristics, the company balances financial flexibility with growth potential, making it an optimal funding method for its long-term Bitcoin acquisition strategy.

How do perpetual strike preferred stocks work in Strategy’s case?

Perpetual strike preferred stocks offer a structured investment option with a fixed dividend, payout priority and a conversion mechanism linked to a predefined strike price. Leveraging these features, perpetual strike preferred stocks secure capital for Bitcoin purchases while attracting investors.

Dividend structure and payout priority

Unlike common stock, where dividends are discretionary, perpetual strike preferred stocks provide fixed payouts. Perpetual strike preferred stocks feature an 8% cumulative dividend, ensuring that any unpaid dividends accumulate over time. Payments can be made in cash or Class A shares, priced at 95% of the prior day’s VWAP (Volume Weighted Average Price). If dividends remain unpaid for four or eight consecutive quarters, preferred holders gain the right to elect one or two board members, enhancing their influence.

Conversion mechanism and strike price considerations

Each STRK share can initially be converted into 1/10th (0.1) of a Class A common share, equivalent to a conversion price of $1,000 per share. Conversion is allowed during the final month of each quarter or if Strategy redeems the shares. 

Did you know? On Feb. 3, 2025, Michael Saylor announced on X that Strategy held 471,107 Bitcoin as of Feb. 2, 2025. These holdings were acquired for over $30 billion. Saylor also noted that Strategy did not sell any of its shares between Jan. 27th and Feb. 2, just one week after the company revealed it had purchased an additional 10,000 Bitcoin for about $1 billion.

Impact on investor returns and company valuation

The structure of Strategy’s perpetual strike preferred stocks benefits both investors and the company. Preferred holders receive steady returns, with potential upside if the common stock appreciates. For the company, issuing preferred stock instead of debt preserves its financial flexibility while raising capital for Bitcoin accumulation. If Strategy’s stock price rises significantly, conversions will reduce dividend obligations, further strengthening the company’s financial position.

Did you know? The board of the Czech National Bank voted in January to explore “other asset classes” for its reserves without specifically mentioning Bitcoin.

How do Strategy’s perpetual strike preferred stocks benefit shareholders?

In the short term, Strategy’s perpetual strike preferred stocks benefit shareholders by raising capital without immediately diluting common equity. But, over time, conversion to common stock is likely, which could increase the share supply. If dividends are paid in stock rather than cash, dilution could occur sooner, although this would help ease cash flow pressures.

The attractive yield of Strategy’s preferred stock has been its key selling point for institutional investors. JPMorgan Chase offered a 6.5% coupon on their similar offering. Strategy plans to use these funds to buy more Bitcoin, strengthening its balance sheet and potentially increasing per-share value. Strategy’s stock price could rise as Bitcoin holdings grow, offsetting dilution concerns. 

While short-term volatility is possible, the long-term outlook on perpetual strike preferred stocks remains positive, assuming the company stays committed to Bitcoin accumulation. For now, a drastic shift in the company’s strategy appears unlikely.

Perpetual strike preferred stocks offer investors a quarterly dividend, and the cumulative feature assures that the shareholder eventually receives any missed payment. The conversion price of $1,000 is significantly higher than the current stock price, making conversion to common stock unlikely in the short term. This should prevent immediate dilution for existing shareholders.  

Did you know? On Jan. 23, President Donald Trump signed an order establishing a working group to investigate potential regulations for a strategic Bitcoin reserve within the US.

Risks in Strategy’s perpetual strike preferred stocks

Strategy’s perpetual strike preferred stocks offer a unique investment opportunity but carry certain risks, such as restricted voting rights and exposure to Bitcoin’s volatile market. Here is a summary of the associated risks:

• Liquidity concerns: Perpetual strike preferred stocks are less liquid than common stock, so you may find it challenging to sell the stocks quickly at the desired price, especially during periods of market stress. The lower trading volume can lead to wider bid-ask spreads, making it more difficult to find buyers and potentially forcing sellers to accept lower prices.
• Market volatility impact: The volatility of Bitcoin can impact the value of the perpetual strike preferred stocks as Strategy is focused on Bitcoin acquisition and holding. Significant fluctuations in Bitcoin’s price can affect the company’s overall financial health and, consequently, the perceived value of the stocks.

• Limited voting rights: Strategy’s perpetual strike preferred stockholders will have no voting power unless the company defaults on its dividend payments. If you hold these stocks, you will have less influence over the company’s direction and strategic decisions.

Investors need to consider associated risks before investing in Strategy’s perpetual strike preferred stocks. Bitcoin is volatile, and ignoring risks might be detrimental to your portfolio.