Verizon Trumps IBM as Undervalued Dow Stock with Higher Yield
Two Dow stocks, International Business Machines (IBM) and Verizon Communications (VZ), are considered undervalued by investors. However, a closer look at their metrics reveals that they are not interchangeable.
One key area where VZ stands out is its dividend yield, which nearly doubles IBM's at 5.9% versus 3.1%. This is particularly important for retirement-focused investors who prioritize income. Verizon also guided 9-10% free cash flow growth in 2026 and delivered $6.4 billion in Q2 FCF alone.
On the other hand, IBM has a longer pedigree with consecutive quarterly dividends every year since 1916 and a 31st consecutive year of dividend increases versus VZ's 20-year streak. However, its forward P/E is 17, compared to VZ's 9, making it more expensive on a valuation basis.
IBM's growth story, however, is led by its $12.5 billion generative AI pipeline and Red Hat accelerating at 11% year-over-year. In contrast, Verizon's top line contracted 0.7% year over year in Q2, and while it has made some positive moves, it remains a low-growth utility.
For retirement-focused income investors deploying capital today, VZ is the clear choice due to its higher yield and solid free cash flow growth guidance. However, for total-return investors who want AI and hybrid cloud exposure at a discount, IBM may be a better pick despite its valuation multiples being higher than VZ's.