Strategy’s recent significant acquisition of bitcoin sheds light on its changing financial approach.

A $1.18 billion issuance of preferred stock, roughly equivalent to 16,800 BTC, indicates a transition away from common stock as dividend commitments surpass $1 billion.

What to know:

• Issuance from Strategy’s STRC preferred series reached $1.18 billion last week, significantly surpassing $396 million from common stock sales, marking the inaugural instance of preferred stock serving as the main funding source for bitcoin acquisitions.
• Annual dividend commitments now exceed $1 billion as the outstanding preferred stock surpasses $10 billion.
• With STRC trading below par following the ex-dividend date, the company may consider raising the dividend by 25 basis points to bolster pricing.

Strategy (MSTR) made its first use of perpetual preferred stock last week as the primary means to acquire bitcoin, indicating a possible change in the company’s funding strategy for bitcoin.

The company announced on Monday that it bought 22,337 BTC in the prior week, representing its fifth-largest purchase on record.

Issuance via its STRC perpetual preferred stock amounted to $1.18 billion, which translates to approximately 16,800 BTC at an average price of $70,000, greatly exceeding the $396 million raised through its common stock at-the-market (ATM) program, which had historically been the main method for building its bitcoin holdings, now totaling 761,068 BTC.

At the current 11.5% dividend rate for STRC, the $1.18 billion issuance corresponds to around $135 million in annual dividend obligations. This has elevated the company’s total annual dividend burden beyond $1 billion.

Nevertheless, the company has allocated about $2.25 billion in USD reserves to meet these obligations, providing a safeguard amid escalating capital costs.

Given that the company’s common stock has declined by over 70%, it seems motivated to uphold a higher share price without further dilution.

Consequently, common equity may be utilized more selectively, primarily when mNAV (multiple to net asset value) is significantly above 1 or when the company seeks to increase USD reserves. This suggests a lesser dependence on common stock sales, with a greater focus on STRC, thereby avoiding the issuance of new common shares.

In summary, Strategy is increasingly financing bitcoin accumulation through its preferred capital structure, with STRC now central to that strategy.

Another dividend increase incoming?

STRC is exhibiting initial signs of price pressure. The preferred stock has now traded below its $100 par value for three consecutive days following its March 15 ex-dividend date. With its one-month volume-weighted average price below par, the company may contemplate raising the dividend by an additional 25 basis points to support the price.

Read More: The math behind Strategy’s path to 1 million bitcoin by the end of 2026