Strategy Executive Chair Michael Saylor said in a recent podcast that his favorite perpetual stock, STRD, is being overlooked by investors because it trades like a junior security, as opposed to STRF, which is a senior instrument.
STRD’s junior status has caused it to receive less attention despite its higher potential returns, Saylor said.
In a capital stack, senior securities are paid out first and typically have lower risk and lower returns. Junior securities pay out after seniors and have higher risk, providing higher potential returns in compensation.
As a senior security, STRF is protected by penalty provisions and prioritized for payouts, which makes it attractive to risk-averse investors who seek returns but prioritize payout security. It currently trades above par at $109 and delivers an effective return of 9.1%, giving a lifetime return of 29%.
STRD is the junior version that offers a higher yield and dividend to compensate for its lower payout priority and greater risk. STRD is non-cumulative and junior in the capital stack, with penalty provisions for the company if the dividend is not paid. It trades below par at $78, with a lifetime yield of -7%, but a higher effective yield of 12.7%, equivalent to a junk bond.
The two instruments are structurally similar, with the main difference being the risk-return profile: STRF provides a safer return, while STRD provides a higher return for taking on more risk.
Saylor questioned why investors favored STRF over STRD when they could achieve returns over 350 basis points higher. He highlighted the emergence of a credit spread between the two instruments, driven by their senior and junior classifications.
Although MSTR is not required to pay dividends on the junior stock, Saylor dismissed concerns about potential non-payment. MSTR will maintain those payments, he said, because failure to do so would significantly hurt STRD’s price. Furthermore, the company’s goal is to sell these securities to raise capital for further bitcoin purchases, making a default on STRD not a viable option.
In addition, Saylor announced Sunday via X that MSTR has been buying more bitcoin, even as the company’s stock continued to struggle, down 4% year-to-date to $289.87, compared to bitcoin’s 10% gain over the same period. The strategy currently holds 640,250 BTC.
