Strategy is seeking shareholder approval to move its four preferred stocks, including STRC, to daily dividend payments without changing their dividend rates or the total amount paid.
The company’s board approved the proposal on Thursday, according to a Friday filing with the US Securities and Exchange Commission. Shareholders are scheduled to vote on the amendments at a virtual special meeting on Oct. 28.
If approved, each calendar day would become a dividend record date, with the corresponding payment made on the next business day. STRC would move to the new schedule first, with its initial daily dividend payment expected on Nov. 2.
STRF, STRK and STRD would follow in January, with their first payments under the daily schedule expected on Jan. 4. The amendments would take effect after Strategy files updated certificates governing the preferred stocks with the state of Delaware.
Related: Strategy buys 950 Bitcoin for $76M, repurchases $174M in STRC
Strategy follows Strive into daily dividends
Strategy’s proposal comes several months after fellow Bitcoin treasury company Strive moved its SATA preferred stock to daily dividend payments, becoming the first public company to adopt the model.
Strive announced in May that SATA would begin paying dividends every business day on June 16 at a 13% annual rate, and also reported that it eliminated its outstanding debt in the first quarter.
Unlike Strive’s business-day schedule, Strategy’s proposal would make every calendar day a record date, with the corresponding dividend payable on the following business day.
Strive holds 26,355 Bitcoin, compared with Strategy’s 846,000 BTC, according to BitcoinTreasuries.NET.
Top 10 Bitcoin treasury companies. Source: BitcoinTreasuries.NET
Strategy CEO says leverage drove STRC below $100
While Strive was the first public company to offer daily dividends, Strategy pioneered what it calls “digital credit,” preferred securities designed to generate income from a capital structure built around the company’s Bitcoin treasury.
STRC, a key part of Strategy’s digital credit strategy, has seen significant price swings this year. In June, the stock fell sharply below its $100 stated amount, hitting an intraday low of $71.25 on June 26, according to Yahoo Finance data.
STRC stock price year-to-date. Source: Yahoo Finance
Speaking on Natalie Brunell’s Coin Stories podcast earlier this week, Strategy CEO Phong Le attributed the decline to more leverage entering the market for STRC than the company had anticipated. He said some investors borrowed against Bitcoin at lower rates to buy STRC and capture the spread between their borrowing costs and STRC’s dividend yield.
When Bitcoin’s price fell, investors who had borrowed against their holdings faced pressure to either add more collateral or sell STRC, according to Le.
“We did not expect the amount of leverage that came into the system,” Le said. “And so that’s a lesson learned, next time around.”
Le said Strategy is seeking to prevent another such unwind by maintaining a strong US dollar reserve and having a policy that allows the company to repurchase STRC when it trades below its $100 stated amount. He also said the company wants to attract more long-term holders, particularly institutional investors.
STRC has since recovered to about $98.41, close to Strategy’s stated goal of keeping the security between $99 and $100. It currently carries a 12% variable annual dividend rate.
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