Summary The Cash Flow Chasm: The operating business doesn't even cover 30% of its obligations. The Liquidation Loop: To pay your dividend, MSTR must either issue more equity or sell its Bitcoin. If prices drop, they must sell more coins to pay the same dividend. The variable dividend on STRC is designed to keep the price at $100 to lure new capital. However, the prospectus reveals this is a "current intention" that management can change. As a preferred holder, you take on the full downside risk of a Bitcoin collapse but receive none of the "to the moon" upside. Co-authored with Beyond Saving We don't usually write bearish articles. We find that it is usually much more constructive to talk about the things we want to buy as opposed to talking about the much larger number of things that we choose not to buy. However, there is a group of investments that members have been frequently asking about, and it is an investment vehicle that is as terrible an idea as "CDO squared" back in 2008. Unfortunately, it is created specifically to appeal to the greed of income investors. We are talking about several issues of preferred securities issued by Strategy Inc. ( MSTR ). We love preferred equities, and we own a lot of them at High Dividend Opportunities . We have a preference for preferred equities that have a higher than average yield and are with companies outside of the traditional banks and insurance companies that dominate the preferred asset class. So naturally, some members are looking at the high yields of the MSTR preferred shares and think they look great. We don't own any, we would not add them to the model portfolio, and we strongly urge anyone considering buying these to completely understand the risk they are taking. What Is MSTR? MSTR is a software company that has a modest and slightly profitable software business. They started buying Bitcoin ( BTC ), and today, their Bitcoin holdings dwarf their software business. MSTR now describes itself as a Bitcoin Treasury Company. Which in Plain English means "We own a bunch of Bitcoin so you should buy our stock". Because that's it, they own and hold Bitcoin and have a little software side business. MSTR owns a lot of Bitcoin. As of December 31st 2025, they owned $58.8 billion in Bitcoin. Source MSTR 2025 10-K Plus about $2.3 billion in cash, which makes up substantially all of their assets. What does MSTR do with this Bitcoin? Nothing. They just hold it and buy more. MSTR's revenues come from product licenses, subscription services, and product support – totaling about $477 million last year. Their gross profit in 2025 was just $327.8 million, or about 0.5% return on their assets. MSTR 2025 10-K That's before they pay for marketing, R&D, and G&A. In other words, against the backdrop of their Bitcoin portfolio which declined in value by $5.4 billion last year, their revenues are quite insignificant. What MSTR Is Doing Today MSTR seems to have little interest in the software portion of the company. Instead, they are focused on buying as much Bitcoin as they can. With minimal organic cash flow from the company, MSTR is buying Bitcoin by raising equity. It has been issuing common equity and now preferred equity in massive amounts. Most recently, MSTR issued $1.0028 billion of the preferred STRC, which was used to acquire $1 billion worth of Bitcoin. In essence, MSTR funded a purchase of Bitcoin purely with capital raised from the preferred. MSTR has authorization to issue massive amounts of equity, primarily through $21.6 billion of STRC and $27.1 billion in common equity. MSTR 8-K Here is our estimate of MSTR's outstanding preferred after this issuance based on their dashboard at Strategy.com : Author's Creation They have 104 million preferred shares outstanding, and they are paying cash dividends of $277.97 million per quarter, or about $1.11 billion/year. Remember, their annual gross revenue had ranged from $463 million to $496 million over the past three years. MSTR does not have the cash flow to even pay for one quarter of dividends from its operating business. How Is MSTR Paying The Preferred? With no recurring cash flow, MSTR can only pay for the preferred dividends in one of three ways: Utilizing cash on hand. MSTR has approximately $2.25 billion in cash according to their dashboard at Strategy.com . That's enough to pay dividends on the current preferred for about two years. Issuing more equity. MSTR can issue either common or preferred equity to raise cash. This can help with immediate liquidity, but in the case of preferred issuance, it leads to higher dividend obligations in the future, and it dilutes the common if they go that route. Selling Bitcoin. MSTR has $60.4 billion in bitcoin at current prices. Their average cost of Bitcoin is $59 billion, so they have a small gain at today's prices. The problem with that is that MSTR then has less Bitcoin and would need the price to go up faster to continue paying the preferred. This works great if Bitcoin only goes up in price. So, MSTR is issuing preferred equity like it is going out of style, and its plan is to either keep issuing equity or to sell its assets to pay the dividends. This would be a wonderful plan if you knew that Bitcoin is going to be $100,000 next year. If Bitcoin is say $50,000, then to pay the $1.1 billion in dividends for the year, MSTR would need to sell 22k Bitcoin. It then has a smaller base from which to pay the $1.1 billion the following year. Every sale, MSTR realizes permanent capital losses, and the amount that needs to be sold to honor the preferred dividends increases. A year or two is probably manageable. If Bitcoin goes down in price and stays down, it's unsustainable. In other words, preferred shareholders need Bitcoin to go up in price in order for their dividends to be sustained. As MSTR issues more preferred equity, the higher the risk to the previously existing preferred. MSTR is showing no indication of slowing down; it is prudent to assume that it's going to continue issuing equity and buying more Bitcoin. And the amount owed for the annual dividend will increase. STRC It's worth noting that the preferred that MSTR is issuing the most of is STRC, which has a variable dividend. STRC's dividend is adjusted in an attempt to keep the price trading at $100. So if the price drops, the dividend will be raised so that investors buy more of it. That sounds great, right? If it becomes less popular, the price drops, and you'll get a dividend raise! It is important to note that this is not guaranteed . From the prospectus : " Our current intention, which is subject to change in our sole and absolute discretion , is to adjust the regular dividend rate in such a manner as we believe will maintain STRC Stock’s trading price at or close to its stated amount of $100 per share." In other words, it is their "intention", and they can change it whenever they want, and there isn't a thing you can do about it. It's a gimmick, and it's designed to help MSTR continue to issue as much STRC as possible near $100/share. It reminds us of the "non-traded" preferred issued by a REIT, Ashford Hospitality Trust ( AHT ), which had provisions that allowed for preferred shareholders to demand redemption for cash or common equity at par value after a period of time. This incentivized shareholders to buy because they thought they could wait out the waiting period and then just demand redemption at par and be "guaranteed" to get their money back. Well, they ended up with too many preferred outstanding, and decided to suspend redemptions and the dividends. We aren't predicting that the same will happen with MSTR, but it certainly is something that can happen. MSTR can stop increasing the dividend and let the price of STRC crash whenever it wants to, and it can suspend the dividends. For now, MSTR wants to issue more shares, so keeping the price elevated is worth the extra costs. The day MSTR decides it doesn't need or want to issue more shares, the variable dividend is going to get reduced. If Bitcoin prices are low, it could be suspended completely. Conclusion The bottom line is that MSTR's preferred shares rely on Bitcoin going up in price. It might. Maybe Bitcoin is headed to $1 million. I've seen people make that claim. Our point is that for these investments, it is an affirmative bet that Bitcoin is going to go up in price at a fairly steady pace. If it doesn't, then the preferreds are not going to collect all their dividends, and they aren't going to recover par. MSTR is placing a big bet on Bitcoin using other people's money, and if you are buying the preferred, it's your money that is being bet with. You're taking the risk on Bitcoin, but if it does go up, you're only getting a small piece of the reward. If it goes down, you're losing your money as assuredly as if you just bought Bitcoin yourself. If you are going to take on the risk of Bitcoin prices, you should make sure you are also getting the potential reward if Bitcoin continues to go up and outperform. These preferred take on the risk, but pass along a large portion of the reward to the common shareholders. Invest in preferred stock with companies that have recurring cash flow to cover their distributions. If you want to take a portion of those dividends and put it in Bitcoin, great. This type of financial engineering doesn't end well in my experience. Buying a preferred equity that is entirely dependent upon issuing new equity or liquidating the asset base isn't a good idea. CDO Squared worked great as long as housing prices only went up. MSTR preferred work great as long as Bitcoin only goes up.
