Strategy’s STRC Mechanism Has Effectively Failed, Dividend Cut Needed, Farside Says

The price-stability mechanism for STRC, the perpetual preferred stock issued by Strategy, has effectively stopped working, according to Farside Investors, which said the company may need to address the problem through buybacks and other measures.

Farside wrote on X on June 27 that STRC’s price-stability mechanism is “fundamentally unstable” and is now “effectively nonfunctional.”

STRC is a dividend-paying preferred stock structured to maintain its $100 issue price. If the market price falls below $100, the dividend rate can be raised; if it climbs above $100, the dividend rate can be lowered.

STRC is currently trading at $75, meaning the dividend rate could be increased further. But Farside said that if investors become more concerned about Strategy’s credit risk, a higher dividend rate could instead increase the company’s financial burden and trigger a “death spiral.” Allowing the company to adjust the dividend rate at its own discretion could also add to investor uncertainty.

Farside added that Strategy’s failure to raise the dividend rate even as STRC trades at about $75 shows the price-stability mechanism has effectively failed. Over the longer term, it expects the company either to repurchase STRC in the market or restructure the product by abandoning the price-stability mechanism and cutting the dividend rate to the SOFR level.