Duke Energy (DUK 1.02%) bulls got a major kickoff recently after reports of a potential takeover by NextEra Energy (NEE -0.42%) emerged. Duke shares soared on the news given NextEra's clout in the utility sector: It's the world's largest publicly listed utility, with a market capitalization more than twice Duke's.

The drama didn't last long, however. Duke promptly rebuffed NextEra's proposal and the latter quickly ruled out hostile takeovers. That's left investors with a lingering question: Is Duke stock worth buying at its current price? Yes, if you must, but buy this utility stock for better reasons than speculation about a potential merger or acquisition.

Stability with embedded earnings growth

Stable revenue and cash flows are high on a long-term investor's priority list when picking a stock. Duke easily passes the test: It's a 95% regulated electric and gas utility.

What does that mean?

A regulated utility enjoys monopoly status in the regions it serves since it owns all local power generation, transmission, and distribution lines. Duke provides electricity to 7.7 million customers in six states -- North Carolina, South Carolina, Kentucky, Florida, Ohio, and Indiana -- and natural gas to more than 1.6 million customers in Ohio, Kentucky, Tennessee, and the Carolinas.

Solar panels.

Image source: Getty Images.

More importantly, state public utility commissions fix regulated utility rates, eliminating much of the volatility usually associated with a business' revenue and cash flows. Electricity and gas are essential services. Duke Energy is thus a great defensive, or even recession-proof, stock.

So if rates are fixed by regulators, how does Duke grow? Duke regularly bids for rate hikes. To win timely approvals, it has to modernize and upgrade its grid infrastructure to convince regulators that it can offer a steady supply of power in the future. The growth in Duke's cash flows so far reflects its efficiency on this front.

Duke is confident that its planned spending of $58 billion through 2024 should bring about 6% compound annual growth rate (CAGR) and support earnings-per-share growth of 4%-6%. Earnings could grow by 7%CAGR in the second half of the decade, thanks to Duke's just-launched clean energy program. That's another reason why I'm bullish about the stock.

Big bets on the future of energy

Earlier in October, Duke announced aggressive plans to scale up its clean energy portfolio. Goals include:

  • Doubling its renewables portfolio capacity to 16 gigawatts by 2025.
  • Retiring all coal-only units in the Carolinas by 2030.
  • Cutting carbon emission from electricity generation by at least 50% by 2030.
  • Spending $65 billion-$75 billion between 2025 and 2029, with a focus on clean energy projects.
  • Converting 100% of its light-duty fleet to electric vehicles by 2030.

By 2050, Duke expects renewables to be its largest source of energy. Focus is on solar and wind energy, as well as battery storage. I didn't consider Duke stock to be a great buy earlier this year partly because of its underwhelming clean energy approach. I also thought it was a bad buy because of its involvement with the Atlantic Coast Pipeline (ACP) project that also drew Dominion Energy and The Southern Company. The project was tangled in time and cost overruns and was putting immense pressure on Duke's balance sheet.

In July, Duke and Dominion canceled ACP. While that means loss of potential earnings from the ambitious project, Duke is now redirecting the incremental capital expenditure that would've gone to ACP to clean energy projects. It's a move in the right direction when you weigh ACP's risks against clean energy's rewards. It is, in fact, imperative for Duke to ditch coal and adopt clean energy in earnest at a time when companies like NextEra Energy are making huge strides in renewable energy. Duke's latest clean energy goals are encouraging and should help lower costs and boost earnings. That's good news for income investors as well.

Stable and rising dividends to bank on

Duke is a great dividend stock. It's paid a dividend every year for 94 years and has increased dividends for 14 consecutive years. Its last dividend raise in July was a modest 2% given the challenging macro environment, but management also hopes to align its payout ratio to a more comfortable 65% to 75%. That payout looks sustainable and leaves enough room for Duke's dividends to grow.

DUK Chart

DUK data by YCharts

Yearly annual dividend increases have contributed immensely to Duke's stock price performance over the years. Also, Duke's dividend yield of 4.2%, while at par with similar-sized rivals, trumps NextEra's tiny 1.7% yield.

Duke's shares may appear a bit pricey currently, but its regulated business, focus on clean energy, and potential earnings and dividend growth make it a great recession-resilient stock to own in such volatile times.