- Strategy lost 40 years of forecasted dividend coverage in just seven months.
- The coverage decline is primarily due to aggressive dilution of its dividend-paying preferred shares.
- The company’s key dividend stock, STRC, hit an all-time low, trading 17.5% below its target price.
Strategy, Michael Saylor’s Bitcoin treasury company, has seen its financial safety net dramatically shrink. In just seven months, the firm lost 40 years of forecasted dividend coverage, raising concerns about its future obligations.
The company calculates this coverage by dividing its BTC holdings’ value by its annual dividend forecast. Consequently, a falling BTC price directly reduces the number of years it can theoretically pay dividends by selling its bitcoin.
However, aggressive share dilution is the primary culprit for the shortened runway. Strategy has massively increased its annual dividend bill by issuing more preferred shares, especially STRC.
Its total face value ballooned from $2.8 billion to $10.5 billion. All these new shares require cash dividend payments, creating a growing perpetual obligation.
Meanwhile, the price of STRC has collapsed. The stock, intended to trade near its $100 par value, hit an all-time low of $82.53 today. This represents a 17.5% discount to its target price.
The company used proceeds from diluting shareholders to buy more BTC. This strategy has backfired as Bitcoin’s price fell roughly 30% over the same period. Strategy now finds itself funding endless dividend payments with underwater bitcoin holdings.
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