Disclaimer: The analyst who wrote this work owns Strategic Stock (MSTR).
Over the past two weeks, Strategy (MSTR) has refrained from using the Market (ATM) Equity Program with Common Stock to fund Bitcoin
BTC$109,472.27
Purchase, choose to use the program with two permanent preferred stocks instead.
This choice is likely to reflect the narrowing premium between the company's stock price and multiple net asset values (MNAV), or more colloquially, the difference in market capitalization and the value of Bitcoin holdings, allowing strategies to buy more BTC to raise more funds without diluting shareholder interests.
Issuing common stock via an ATM is not appealing if there are transactions where the stock price is close to the underlying Bitcoin asset value. Such offerings are usually only advantageous when run at meaningful premiums.
The strategy used revenue from two permanent preferred stock ATMs to fund the latest 1,045 BTC purchases. 59.18% from STRK products, STRF 1 to 40.82%. These preferred stocks show strong lifetime returns of 35% in STRK and 24% in STRF. This allows the company to have more flexibility to continue accumulating Bitcoin for its common stock investors while maintaining a rise.
There are also additional dynamics, according to analyst Jeff Walton. Effective dividend yields for STRK and STRF have steadily declined from around 10%, despite the US 10-year Treasury benchmark yields remaining relatively constant at 4.5%. This is because dividend yields drop as stock prices rise. This is a bond-like behavior that makes preferred stocks more attractive in a stable rate environment.
The strategy could once again engage ATMs with common stock once more, especially if the stock price rises significantly, especially if it exceeds twice the MNAV. While common stock ATMs remain the main mechanism for funding dividend obligations on preferred stock, the strategy retains the option to use preferred stock ATMs for this purpose, depending on the market situation.
