Last quarter, chip giant Intel (INTC -3.67%) reported stellar financial results, crushing estimates for the third quarter and raising its revenue, earnings per share, and free cash flow guidance from what it told investors to expect back in July. Right now, the company says that it expects to rake in $71.2 billion in revenue, $4.53 in non-GAAP earnings per share, and $15.5 billion in free cash flow.
Interim CEO and CFO Bob Swan also told analysts on the conference call following the earnings release that in 2019, "we expect to deliver another record year for the company," suggesting both revenue and earnings per share growth from what the company says to expect for this year.
Image source: Intel.
In light of the company's strong financial performance in 2018 and what appears to be a positive outlook for 2019, I think the next time Intel boosts its dividend, it could deliver a significant increase. Here's why.
Intel's dividend plan
Back at the company's investor meeting in February of 2017, current interim CEO and CFO Bob Swan showed a slide in which he summarized the company's capital allocation plan. According to that slide, Intel's plan with respect to the dividend is to have it "grow with non-GAAP earnings."
Intel's non-GAAP earnings per share guidance for 2018 was originally $3.55 per share, representing just a 2.6% year-over-year increase. Had the chipmaker ultimately delivered to that, I'd still have expected the company to raise its dividend for calendar year 2019, albeit fairly minimally.
Over the course of the year, the picture has changed dramatically, with the company boosting its revenue and earnings per share each time it reported earnings results. The company's latest earnings per share guide represents about 31% earnings per share growth from 2017 levels. Given the large increase in earnings per share that the company is set to enjoy this year, I think the odds are good that the company will want to pass at least some of that success onto its shareholders.
Another thing to keep in mind, too, that Swan said at the 2017 investor meeting that "[our] desires are to keep [the dividend] around 40% of our free cash flows."
Intel also raised its free cash flow guidance for 2018 again to $15.5 billion, or around $3.33 per diluted share. At 40% of that free cash flow per share figure, the chip giant's annual dividend would rise to approximately $1.33 per share. For some perspective, Intel's dividend currently sits at $1.20 per share.
So, if Intel is intent on getting the dividend to 40% of free cash flow, then I'd expect the chipmaker to boost its dividend to $1.33 per share -- up almost 11%. If the company wants to more closely align the growth of its dividend with the non-GAAP earnings per share growth that it's expected to enjoy this year, the dividend could see a much bigger boost.
In either case, if you're an Intel shareholder, I think you can count on the company giving you a solid income boost the next time it declares a dividend.
