Strive, Inc. has introduced SATS, a newly IPO’d perpetual preferred stock with a fixed annual dividend of $15 per share based on a $100 stated amount, resulting in a 15% yield. This instrument ranks junior to Strive’s SATA preferred stock but offers cumulative dividends, meaning unpaid amounts accumulate as obligations to shareholders, unlike the non-cumulative structure seen in Strategy’s STRD. The article posits that if market demand for predictable income drives SATS above its $100 par value, Strive could utilize at-the-market offerings to raise capital at an effective cost lower than the stated yield, potentially increasing Net Bitcoin Per Share (Net BPS) for common shareholders.
The analysis compares SATS to Strategy’s STRD, which trades below par despite having stronger Bitcoin asset coverage. Proponents argue that income investors may prioritize the reliability of cumulative, fixed dividends over coverage ratios, potentially pricing SATS at yields below 14%. For instance, if SATS trades at $115, issuing new shares would generate $115 million in gross proceeds while creating only $100 million in notional preferred claims under Net BPS calculations, leaving $15 million as residual value attributable to common equity. However, this accretion relies on the assumption that the floating liquidation preference, which adjusts with market prices, resets to $100 when trading normalizes or during bankruptcy scenarios where the stock falls below par.
Significant risks and constraints temper this opportunity. Strive must maintain an 18-month dividend reserve equivalent to $22.50 per share, requiring 22.5% of raised capital to remain in cash equivalents, thereby reducing the funds available for Bitcoin deployment to 77.5%. Additionally, tax risks identified in Strive’s prospectus, such as deemed distributions or disqualified preferred stock treatment, may arise if shares are issued above liquidation preferences. The strategy is contingent on SATS maintaining a premium; if it trades at or below $100, the financing cost rises to 15% or higher, and issuance becomes dilutive rather than accretive.
The proposed mechanism for SATS accretion hinges on a specific interpretation of Net Bitcoin Per Share (Net BPS), a metric defined by Strategy rather than explicitly reported by Strive. By treating the preferred stock liability at its $100 notional value regardless of market price, the model assumes that any capital raised above par flows directly to common shareholders. This creates a theoretical arbitrage between the market yield demanded by income investors and the accounting treatment of the debt-like instrument. However, this view simplifies the economic reality by largely dismissing the impact of the floating liquidation preference, arguing it is irrelevant except in bankruptcy. In practice, if SATS trades significantly above par, the increased liquidation preference represents a real senior claim on assets that offsets the apparent equity gain until the preference resets.
From a Market Structure perspective, the viability of this strategy depends entirely on sustained investor appetite for high-yield, cumulative crypto-linked preferreds. While the 15% fixed dividend is attractive compared to variable-rate instruments like SATA, the requirement to hold substantial cash reserves for dividend coverage reduces the efficiency of capital deployment into Bitcoin. If volatility drags down Bitcoin returns or if market sentiment shifts away from high-cost digital credit instruments, the cost of capital could exceed the return on assets. Furthermore, the reliance on hypothetical pricing scenarios ignores the liquidity risks inherent in at-the-market offerings of newly listed securities, where large issuances could depress the share price back toward par, eliminating the accretion benefit.
