Strategy Preferred Shares Offer 16% Yields but Bring High Risk. Should You Bother Buying?

Strategy (MSTR) has seen the price of its STRC (STRC) preferred shares drop, pushing yields as high as 16% while retail investors worry about the risk of future dividend cuts. The company, led by Founder and Executive Chairman Michael Saylor, has aggressively marketed these high-yield securities to everyday investors to help fund its large Bitcoin (BTC-USD) purchases.

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These securities rely entirely on the company’s ability to maintain high Bitcoin prices. Because these shares are tied to the volatile digital currency and the company generates no actual income from its large Bitcoin holdings, the market is starting to view them as risky assets comparable to low-grade junk bonds. For most people, these shares are likely too risky to bother with, as the high yield signals a larger chance of dividend cuts if the Bitcoin market continues to struggle.

Strategy Attracts Retail Investors

Strategy sold this stock directly to individual investors. The company used platforms like Robinhood (HOOD) and partnered with Morgan Stanley (MS) to reach more people. It also advertised on social media to reach financial advisors and family offices. One specific issue, ticker STRC, was sold as a Bitcoin-backed asset with a yield meant to keep the price near $100.

Despite this pitch, STRC shares have dropped in value by about 10% over the last month. Investors now own assets that behave more like low-grade junk bonds than the preferred stocks issued by banks like JPMorgan Chase (JPM) or Bank of America (BAC).

Strategy Maintains Dividend Reserves

The main fear for investors is that the company creates no income from its 843,000 Bitcoin stash. To handle this, Strategy keeps cash reserves of about $2.6 billion. This amount is enough to cover roughly 1.5 years of dividend payments. While the firm is not legally forced to pay these dividends, management stated they plan to maintain a reserve of one year of payments to support the many retail buyers. Although Strategy’s lack of income worries some, the company argues that its large Bitcoin holdings provide strong backing for the securities.

Is Strategy Stock a Buy, Hold, or Sell?

According to TipRanks, Strategy (formerly known as MicroStrategy) stock has a consensus Strong Buy rating among 13 Wall Street analysts. This rating is based on 12 Buy and one Hold ratings assigned in the past three months. The average 12-month MSTR price target of $287.58 implies 206.4% upside from current levels. (See MSTR stock forecast)

See more MSTR analyst ratings

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