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Michael Saylor said the strategy’s variable rate Series A perpetual stretch requires Bitcoin to appreciate at an annual rate of 3.3% for capital gains to fund dividends on preferred stock indefinitely.
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The strategy’s chart showed that with a 0% return, Bitcoin profits could cover the dividend for 31 years, while a 3.3% return marks the breakeven point for sustainable dividend funding.
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This came as the strategy sold 3,588 bitcoins for approximately $216 million to finance its dividend and increase its cash reserves, the largest sale in its history.
Strategy& (MSTR) Executive Chairman Michael Saylor on Tuesday defended the economics behind the company’s latest preferred stock addition, saying that Bitcoin (BTC) only needs to appreciate at an annual rate of 3.3% for capital gains on Strategy’s holdings to pay dividends on its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) indefinitely under the company’s current capital structure. The clarification comes a day after the strategy disclosed its largest-ever Bitcoin sale to fund preferred dividends and shore up its cash reserves.
“One of the most misunderstood $MSTR metrics is BTC breakeven ARR,” Saylor said Tuesday on X.
The strategy’s official account shared a chart showing Bitcoin’s annualized return rate versus years of dividend coverage, and noted that Bitcoin capital gains fund STRC credits dividends. Saylor’s comment explained the post.
The mathematics behind breakeven ARR
The chart showed that with a 0% annual return rate for Bitcoin, the current Bitcoin profits would cover STRC dividends for 31 years. Once Bitcoin’s annualized return reaches 3.3%, the point labeled ‘BTC breakeven ARR’, capital gains alone will be enough to pay dividends permanently, if the capital structure of the strategy remains unchanged. However, the chart states that it should not be construed as an investment in MSTR or other securities, and that results “may differ materially.”
The total liquidity buffer of the strategy is 2.2 years
The strategy is selling BTC to fund its stretch dividend. The company announced in an 8-K filing with the Securities and Exchange Commission (SEC) on Monday that it sold 3,588 Bitcoins for approximately $216 million, the largest one-time Bitcoin sale in the company’s history.
According to the filing, the transaction was conducted at an average price of approximately $60,200 per coin, which is significantly lower than the strategy’s average acquisition cost of $75,476. The filing showed that the proceeds were used to pay a quarterly dividend on the company’s Digital Credit Preferred Securities and boost its cash reserve by $2.55 billion.