Occidental Petroleum (OXY -0.94%) disclosed yesterday that it would pay the upcoming dividend on the preferred shares owned by Warren Buffett's Berkshire Hathaway (BRK.A -1.63%) (BRK.B -1.66%) in cash instead of stock. The quarterly cash payout on the preferred stock is $2,000 per share, with the next payment due on Oct. 15. Instead of making this payment in stock, as the company had done since April, Occidental will pay it in cash. Overall, it will pay about $200 million to Buffett's company.

Berkshire made the initial $10 billion preferred stock investment in Occidental to help it fund its acquisition of Anadarko Petroleum last year. Occidental had the option of making future dividend payments in cash or stock, which gave it the flexibility to preserve funds during volatile periods in the oil market. That was certainly the case earlier this year as crude oil prices tumbled due to the impact the COVID-19 outbreak had on demand.

A person handing over cash.

Image source: Getty Images.

Oil prices have since stabilized, which put Occidental Petroleum in a better position to generate free cash flow to support cash dividends to Berkshire. In addition to that, the company made some progress toward improving its financial profile. It issued $2 billion in high-yield debt in June, which enabled it to refinance some upcoming maturities. Meanwhile, most holders of notes due in 2036 chose not to force the company to repurchase them this October, which freed up its cash for other uses, including retiring some other debt and paying Berkshire's dividend in cash.