Chip giant Intel (INTC 1.18%) is playing catch-up, and catch-up is expensive.

Third-party foundry TSMC has pulled ahead of Intel in terms of manufacturing technology. That leaves Intel in a tough spot for two reasons. First, it gives competitors like AMD access to superior manufacturing tech, which puts the company in an uphill battle to maintain its dominant CPU market share. Second, it adds risk to Intel's plan to build its own world-class foundry business.

Intel will spend roughly 35% of its revenue on capital expenditures in 2023 and 2024. Combined with the impacts of a tough PC market and extensive cost cutting, the net result of this investment binge will be essentially no free cash flow in those years. It's only in 2025 and beyond that Intel expects to get its free cash flow margins back to approximately 20%.

For those who invested in Intel for its dividend, that should sound concerning. While Intel is unlikely to cut the dividend unless it has no choice, investors should not expect a dividend increase for the foreseeable future.

"At the level we want"

Intel CFO David Zinsner spoke at the UBS 50th Global TMT Conference on Monday, and while much of the back-and-forth with analyst Tim Arcuri focused on Intel's strategy, investments, and cost-cutting initiatives, the dividend came up.

Intel has taken great pains so far to avoid cutting the dividend. The company announced a sweeping plan to reduce costs by $10 billion by the end of 2025, which will free up cash for investments. Intel has also forged a unique partnership with Brookfield Asset Management to fund nearly half of the planned expansion of its factories in Arizona. A dividend cut could have been another source of fresh cash, but Intel has instead pursued other options.

Because Intel's stock has tumbled since peaking last year, the dividend yield is now right around 5%. That high yield is one thing keeping investors on board through this difficult period, and Intel knows it. Zinsner had this to say about the dividend: "I think it is important. I think the Board feels it's important. It gives investors a yield when we're in an investment phase with the Company."

While the goal is to keep the dividend intact, it definitely won't grow until free cash flow rebounds. "But I would say that our thinking, given the amount of investment that we've got to make, is that growing the dividend, obviously, it doesn't make a ton of sense," Zinsner added.

Zinsner also didn't completely rule out a dividend cut if the cash flow situation deteriorates, saying, "...if something got dramatically different in terms of our cash flow, of course, that might change the calculus on the dividend..."

Intel is more than a dividend stock

The best-case scenario for Intel investors is for the dividend to stay at the same level until 2025 or 2026, depending on when the company starts seeing cash flow recover. If the payoff from these manufacturing investments takes longer than expected to materialize, the dividend might be stuck where it is for even longer.

A stagnant dividend isn't ideal for investors, but the main reason to invest in Intel today is not the dividend, but the potential for the company to reclaim its dominance in the PC and server CPU markets while creating a multibillion-dollar foundry business.

Global foundry revenue was around $85 billion in 2020, and TSMC held a market share above 50%. Intel is betting that foundry customers want another option, and that its position as a U.S. company will give it a meaningful advantage. As foundry customers look to lower their dependence on Taiwan, Intel has an opportunity to steal away business.

If you want a steadily growing dividend, Intel is not the stock for you. Instead, Intel is a high-potential turnaround play with a steady, high-yield dividend to reward investors for sticking around. That's not a bad deal in my book.