Strategy Executive Chairman Michael Saylor recently said in a podcast that his favorite sustainable stock, STRD, is being ignored by investors because it trades as a junior security, unlike STRF, which is a senior instrument.
Saylor said STRD has received less attention despite its high potential returns due to its junior status.
In the capital stack, senior securities are paid out first and typically have lower risk and lower yields. Junior securities are paid after senior securities and involve greater risk, resulting in higher potential returns in compensation.
As a senior security, STRF is protected by penalty provisions and prioritized for payout, making it attractive to risk-taking investors who want yield but prefer payout protection. It is currently trading at par $109 and giving an effective yield of 9.1%, giving a lifetime return of 29%.
STRD is the junior version, offering higher dividends and yield to compensate for its lower payout preference and greater risk. STRD is non-cumulative and is junior in the capital stack, with a provision for penalties for the company if dividends are not paid. It is trading at $78 with a lifetime return of -7%, but a high effective yield of 12.7%, similar to junk bonds.
Both instruments are structurally similar, with the main difference being the risk-return profile: STRF offers a safe yield, while STRD offers a higher yield for taking on more risk.
Saylor questioned why investors preferred STRF over STRD when they could achieve a yield of more than 350 basis points. He highlighted the emergence of credit spreads between the two instruments driven by their senior and junior classification.
Although MSTR is not obligated to pay dividends on junior stock, Saylor dismissed concerns about potential nonpayment. MSTR will maintain those payments, he said, because failure to do so would significantly harm STRD’s price. Furthermore, the company aims to sell these securities to raise capital for additional Bitcoin purchases, making default on STRD not a viable option.
Additionally, Saylor announced on Sunday via The strategy currently holds 640,250 BTC.