Intel Corporation (NASDAQ:INTC) is likely to increase its dividend by 8% to 45% over the next 18 months to two years, according to analysts at Jefferies.

Intel Corporation Likely To Raise Dividend By 45% In Two Years

In a note to investors, Jefferies analyst Mark Lipacis and his team explained that their estimated dividend increase for Intel Corporation (NASDAQ:INTC) was based on its cap structure target, which positions the company to buy back stock and lower its share count by 8%.

Lipacis and his team believed that Intel’s profit will be driven by its 14nm-MPU, which would lead to higher margins, tablet share gains and PC growth next year.

Intel Corporation’s new capital structure target

In July, Intel’s board of directors announced that its new capital structure target was zero net cash ($10 billion below 2Q14). The board also approved a $20 billion shares repurchase program.

The company’s management intends to repurchase $4 billion worth of its stock in the third-quarter and another huge buyback in the fourth-quarter this year.

“Assuming the company uses all $20 billion of the buyback before EoY15, we estimate that it could lower its share count by at least 8%,” according to the analysts.

Lipacis and his colleagues suggested that their estimated share count reduction should result to an 8% minimum increase in the dividend of Intel Corporation (NASDAQ:INTC). They pointed out that the company’s dividend payout target is 40% of FCF.

Intel Corporation could achieve $15B FCF in 2015

The analysts estimated that Intel Corporation (NASDAQ:INTC) will achieve $15 billion FCF next year due to the following factors:
1. lower capex as the company completes its three new developments/manufacturing facilities in four years
2. the revenue and profit forecasts in 2015 driven by its 14nm-MPUs

The analysts emphasized, “We’ve argued that with the intro of its 14nm products, Intel will have both lower cost and longer battery life processor vs. competitive tablet processors…”

In addition, Lipacis and his team suggested a 45% upside potential to Intel’s dividend over the next 18 to 24 months based on their assumption of a 40% dividend payout on $15 billion in FCF.

Lipacis and his team said Intel Corporation (NASDAQ:INTC) remains their top idea. They have a Buy rating and $45 price target for the stock.

Intel’s current dividend

The company’s board of directors recently approved a dividend of $0.2250 or $0.90 per share on an annual basis. It will be payable on December 1 to stockholders on record as of November 7, 2014.