Compass Investments

STRC from Strategy (formerly MicroStrategy) currently offers investors the potential for growth of more than 28% if the stock returns to par value and begins paying dividends within the next year. However, market participants are still continuing to sell off these shares.

Over the past week, STRCs price has fallen by 2% , and over the past 30 days, by 11% . Such sell-offs, against the backdrop of Strategys generous offer, point to a decline in confidence in management, including founder Michael Saylor.

Currently, STRC was paying an annual dividend of 12% based on a full par value of $100, even though the shares were trading for less than $86 apiece.

If the stock returns to Strategys projected range of $99$100 and the company makes its dividend payments, investors will receive a total return of at least 15% from share price appreciation and the flow of bi-monthly dividends.

Moreover, these dividends are taxed at a preferential rate as a return of capital, which means an effective yield of 12% (after taxes) for many investorsa rate that will be even higher than the nominal yield.

Furthermore, a rise from below $86 to over $99 per share could occur at any time, not just after the 12-month period has elapsed. This makes the temporary 15% time-weighted average of any early gains even more significant compared to steady growth over the course of the year.

Furthermore, as if this offer werent attractive enough, Strategy pays dividends at a rate of 12% of the full par value of each share ($100), rather than based on the dollar value of the STRC stock portfolio held by investors.

This means that an investor purchasing STRC shares at a price below $86 per share effectively receives an effective dividend yield of over 14% , plus tax benefits on the return of capital.

If you add these figures together15% plus 14% with tax benefitsthe offer seems almost too good to be true.

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For many market participants, the opportunity to earn a return of more than 28% is likely exactly that kind of opportunity.

Michael Saylor has repeatedly stated that he aims to see STRC shares trade in the $99$100 range, and investors could earn more than 28% if that happens within the year. Nevertheless, the market continues to sell.

The risk that offsets STRCs incredible proposition is, of course, that the price of STRC shares continues to fall anyway.

After all, Strategy has no guarantee that STRCs price will ever return above the $99 mark. Moreover, it could trade at any price down to $0.

These are simply preferred shares issued by Sailors company to finance BTC purchases. On Nasdaq, they were trading at just $71.25.

In other words, management has promised to support the $99$100 level in the long term, but has allowed the shares to trade at 28.75% below par value. This is a negative signal.

According to the companys own reports, the board of directors intends to maintain STRCs trading price at around $100.

However, even though the company generates an effective yield of about 14% a yield that significantly exceeds that of junk bonds and is comparable to credit card interest rates investors remain skeptical.

Strategy designed STRC to function as a high-yield bank account or money market instrument with a higher payout rate, although it is by no means an insured savings product.

No bank account or money market instrument insured by the Federal Deposit Insurance Corporation (FDIC) is allowed to lose money the way STRCs stock price is falling.

If a rational investor had complete confidence in Strategys ability to maintain above-average dividend payments, he would have to pay the full price of $100. However, no one is doing that right now.

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