Chief Investment Officer Matt Dines warns that investors are underestimating the long-term risks of perpetual preferred stocks, such as Strategy‘s STRC. He highlights that holders can never demand repayment of principal and are exposed to indefinite liquidity and interest rate risk. The analysis comes as STRC’s daily trading volume surged to a record $1.5 billion, with Delphi Digital noting the company’s BTC accumulation could slow if its $28 billion issuance cap is not raised.
Investors are mispricing risk for perpetual preferred stocks like Strategy’s Variable Rate Series A Perpetual Stretch Preferred Stock (STRC), according to Matt Dines, chief investment officer of credit asset management company Build Markets. Corporate issuers of such instruments never have to repay principal and can pay dividends indefinitely without renegotiating terms.
Holders must sell on the secondary market to recover their principal, exposing them to permanent liquidity and interest rate risks due to the lack of a maturity date. “If spreads start to rise and the market demands higher yields from corporate borrowers, you also have to attach that to the infinite duration of the perpetual,” Dines stated.
The analysis emerges alongside surging demand for STRC, which saw its daily trading volume hit a record $1.5 billion on Thursday. Strategy uses preferred stock issuance to fund its Bitcoin purchases, according to reports. Delphi Digital researchers noted STRC has an authorized issuance cap of about $28 billion.
If that cap is not raised, the company’s BTC accumulation may slow down. The total notional face value of outstanding STRC shares is $8.5 billion, with a total market value of approximately $8.4 billion.
STRC currently trades near $99 per share and carries a variable dividend rate of 11.5%, according to Strategy. The yield changes on a monthly basis. The company has also opened voting for common equity and STRC holders to approve semi-monthly dividend payments.
