Michael Saylor wants $100 STRC — the market says different

STRC, the largest dividend-paying stock from Michael Saylor’s BTC treasury company Strategy (formerly MicroStrategy), closed for trading yesterday at $87.31. 

That number is supposed to be $100.

Saylor takes great pride in STRC trading at its par value. Its dividend snapshot date is just one week away and he wants it trading at $100 by then.

Indeed, according to its SEC filing, Strategy is “intended to maintain the trading price of STRC Stock near its $100 per share stated amount.”

Unfortunately, STRC is 12.7% below the company’s par value, a synonym for its “stated amount.”

Worse, the company’s dashboard has already flagged another big problem.

Specifically, as of yesterday’s Nasdaq close, STRC’s trading volume-weighted average price (VWAP) for the month of June was $94.09. That figure is below Strategy’s worst threshold of $95 per share and, as such, a level so dire that Strategy’s rules-based framework recommends a dividend rate increase of at least twice the regular pace of increase. 

Specifically, according to its rubric, if the current month of June closes with a VWAP below $95, STRC’s dividend should increase by 0.5% or more for the next period.

Normally, dividend rate increases have been just 0.25% per dividend snapshot period across STRC’s listed lifetime.

In other words, if traders don’t step in to bid up the price of STRC on their own, the dividend is likely going to rise from its current 11.5% — already nearing credit card-like rates — to an even more irresponsible 12% for the next dividend snapshot in mid-July.

If Strategy’s board wants to be even more aggressive, its rubric allows an even higher increase at their discretion.

Although a 12% dividend might encourage bids to $100, $87.31 is a distance away.

Not only do traders need to wait an entire year to receive that hypothetical 12% dividend, which would be sliced into 24 semi-monthly return of capital payments of 0.5% apiece anyway, they also must hope that Strategy’s Board does not lower the dividend over the course of 12 months.

Moreover, there’s also the very real risk that STRC itself continues to decline in price.

Indeed, STRC is all about hope. Never guaranteed, Strategy’s board may change or suspend the dividend at any time, including their so-called ‘rules-based framework’ for dividend changes. 

The company’s public STRC disclosures also warn that cash dividends are not guaranteed, and that dividends might suddenly decrease or suspend.

Strategy also provides no guarantees for the price of STRC, which is currently performing terribly.

Read more: Strategy’s ‘stable’ STRC spends a lot of time below its $100 target

Beyond raising the dividend on STRC — ideally by a lot — there are at least four other tools in Strategy’s toolkit for restoring confidence. Unfortunately, these tactics are improbable or less effective.

First, the company is allowed to buy back STRC directly on the Nasdaq.

Of course, the company has never done this, nor has it indicated its desire to do so. To the contrary, Strategy created STRC to sell in order to buy BTC, not to repurchase STRC.

Second, Strategy could broadcast its intention to pause issuing STRC above $100. The company’s November annex said that it intended to issue additional STRC between $99 and $101, and almost all of its practical issuance has been near $100.01 per share. 

This dilution has effectively capped the price of STRC, reducing demand for speculators as its price nears $100.

If the company were to announce an intention to pause this dilutive issuance program near $100.01, it might spark some positive interest due to that unexpected maneuver.

Third, the company could continue stacking USD by diluting its other shareholders. By adding USD to its capital buffer, Strategy could signal to the market that it remains serious about paying STRC dividends on-time and for the long haul.

In fact, Strategy has been using this tactic recently, and it has proven somewhat ineffective. Strategy has been selling MSTR into the market against its common stockholders in recent weeks, adding hundreds of millions of dollars in additional cash for precisely this reason.

Unfortunately, STRC shareholders are not fully convinced with Strategy’s USD reserves at a relatively modest $1.4 billion.

STRC remained 12.7% below its par yesterday.

Read more: Jim Chanos was right about Strategy — just not patient enough

Fourth, Strategy could announce a surprise benefit to STRC shareholders. Boards of directors at public companies have the right to declare one-time dividends or other gifts to their shareholders.

Strategy CEO Phong Le, for example, announced that he purchased $1 million worth of STRC this week. Although that figure pales in comparison to his annual executive compensation, it’s an example of a small surprise.

Perhaps a more creative idea by Strategy’s board could help to re-instill confidence in today’s bearish market for STRC.

STRC has regained its peg in the past, bucking prior bearish trends.

As Protos reported in October, STRC rallied to $100 for the first time after Strategy made good on dividend payments. It had also just lifted the dividend rate to 10.25%, and had not sold any STRC through its then-new ATM program since July.

All of those positive factors inspired confidence among traders who paid full par price for the dividend snapshot that month.

STRC certainly has the ability to regain $100. The only question is the price Strategy is wiling to pay to encourage those bids.

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