Warren Buffett and his investing team are taking advantage of the stock market sell-off, but you might be surprised to hear about their latest purchase. It's not a tech or a financial or a consumer stock that Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%) has large stakes in. It's an oil stock -- one that Buffett can't seem to keep his hands off of.

A regulatory filing dated June 22 reveals Berkshire Hathaway bought 9.6 million shares in Occidental Petroleum (OXY 0.58%) between June 17 and June 22, valued at nearly $529 million. After an unstoppable rally through the year, it's only now -- in the past couple of weeks or so -- that Occidental stock has taken a breather. At Thursday morning's prices, it has dropped more than 20% in value since hitting 52-week highs in late May.

Buffett clearly saw an opportunity in the oil stock's dip, and Berkshire now owns nearly 152.7 million shares in Occidental. Notably, Berkshire also owns shares of Chevron, but it hasn't reported any transaction in Chevron stock so far this month. So what is it about Occidental that has Buffett so excited, and should you also follow the legendary investor and scoop up shares in the oil stock today? 

Buffett's big bet on oil prices

Many were taken by surprise when Buffett first disclosed his position in Occidental in March. After all, he has never been a fan of cyclical stocks, and most of the stocks in Berkshire Hathaway's portfolio have been well-established, stable businesses that are also cash-flow machines.

Turns out, Buffett is bullish about the oil markets, and Occidental's financial standing suits his palate.

To be sure, although he first disclosed his position in common stock of Occidental only in March, he already held warrants to buy 83.9 million shares in the oil company for a price of $59.62 per share. Berkshire received those warrants when he purchased preferred stock with an 8% dividend in Occidental in 2019 to fund the company's Anadarko acquisition.

Back then, Buffett told CNBC his bet in Occidental was a bet on oil prices in the long term, as they largely determine whether an oil stock "is a good investment over time."

True to his words, he started loading up on Occidental's common stock in March as oil prices leapt higher. Occidental's cash flows have boomed as well, which is perhaps one of the biggest reasons why Buffett likes this oil stock so much. And of course, there's the dividend.

Occidental is becoming a leaner, stronger company

In its first quarter, Occidental's free cash flow (FCF) more than doubled year over year to record quarterly highs of $3.3 billion. The oil giant used the windfall to pay down debt worth an equal amount.

Earlier in the year, Occidental outlined its near-term capital allocation goals that included prioritizing repayment of debt worth $5 billion, followed by dividend growth and share repurchases.

Now that Occidental is closer to its debt goal, I expect the company to initiate a $3 billion share repurchase in the second quarter. And this should be the stepping-stone for dividend growth. In Occidental's first-quarter earnings call, CEO Vicki Hollub emphasized how reducing debt and the number of shares outstanding should make Occidental's dividends more sustainable while positioning the company to "increase it at the appropriate time." 

For that matter, Occidental already increased its annual dividend earlier this year by a huge margin to $0.52 per share versus the only $0.04 per share it paid in 2021. Management, of course, boosted the dividend only because it believes it's sustainable. It now also sees the dividend rising further with time. 

Why Buffett likes Occidental stock, and so should you

Warren Buffett is a big fan of dividends, and Berkshire Hathaway is chock-full of steady dividend stocks, most with high yields.

Occidental stock might be yielding only 0.9% right now, but a stronger balance sheet in the making with solid cash flow and dividend growth potential makes it an intriguing stock to play the oil boom. As one of the largest oil producers in the U.S., Occidental has cash flows that are highly leveraged to oil prices, and that's a great thing in the current high oil-price environment.

Above all, with Occidental stock now trading at just about 5.6 times trailing 12-month FCF versus Chevron stock, which is trading at around 11.3 times FCF, Buffett might even be seeing value in the oil stock right now.