Buy STRC and make 28%? Traders say no thanks

STRC by Strategy (formerly MicroStrategy) is now offering investors more than 28% upside potential if it returns to par and pays its dividends over the next year. But investors keep selling it anyway. Over the last week, STRC has declined 2% and is down 11% in 30 days.

These sales in the face of Strategy’s generous offer are votes of diminishing confidence in management, including founder Michael Saylor. As of today, STRC was paying a 12% annualized dividend at full par value of $100 yet was on sale for under $86 per share. If that stock returns to Strategy’s intended $99-100 trading range and pays its dividends, investors would earn a total return of at least 15% on their stock price appreciation plus a stream of semi-monthly dividends.

Even better, those dividends have beneficial tax treatment as return of capital, meaning that 12% is even higher than 12% for many investors on a tax-adjusted basis. The looming tax bill of Strategy preferreds Read more: Michael Saylor wants $100 STRC — the market says different Moreover, the rally from sub-$86 to over $99 per share could occur anytime, not simply at a 12-month maturity. This would make the time-weighted value of any early 15% rally worth even more than if it rallied evenly across 12 months.

In addition, as if the offer wasn’t already sweet enough, Strategy pays its 12% dividend rate on each share’s full $100 par value, not based on the USD value of investors’ STRC holdings. That means that an investor buying STRC below $86 per share is actually earning an effective dividend yield over 14% plus return of capital tax treatment. Adding these numbers — 15% plus a tax-advantaged 14% — makes the offer sound almost too good to be true.

For many investors, an opportunity over 28% probably is. Corporate objective for STRC to trade at $99–$100 Michael Saylor keeps saying he wants STRC to trade at $99-100, and investors could earn over 28% if it does within a year. Yet the market keeps selling.

The risk to counterbalance STRC