When Warren Buffett buys a stock, he buys stakes in businesses with the intention of owning them for the long term. The case for Occidental Petroleum (OXY 0.56%), though, appears a bit different. Given the pace at which Buffett is lapping up the oil stock, it seems he could eventually acquire the company.

In July, Buffett's Berkshire Hathaway (BRK.A 0.99%) (BRK.B 0.91%) sought approval to acquire up to a 50% stake in Occidental Petroleum. The Federal Energy Regulatory Commission (FERC) revealed it just gave Buffett the green light.

Buffett already owned preferred stock and warrants in Occidental Petroleum before he disclosed a position in Occidental's common stock in March. The legendary investor has been buying the oil stock aggressively since, with Buffett's latest purchase in early August driving his stake in the oil and gas giant up to 20%. Occidental Petroleum stock has rocketed almost 57% since the beginning of March, as of this writing.

Berkshire Hathaway is flush with cash -- it held nearly $105 billion as of the end of June -- and where Buffett would spend all that money has been a talking point for a long time now. Yet, an oil company? I bet that few investors saw this coming, especially since oil is a cyclical sector, and fossil fuels face an uncertain future amid the rise in clean energy fuels to combat climate change.

Despite what naysayers say, though, Buffett is evidently bullish about the future of oil and sees so much promise in Occidental Petroleum that he's eyeing a 50% stake in the company now. Buffett doesn't invest on a whim, so his dive into Occidental must be built on solid ground. 

The lure of oil, and a strong oil play

While it's true that more economies across the globe are transitioning from fossil fuels to renewable energy, the pace of adoption is still painfully slow. In its flagship world energy outlook report dated October 2021, the U.S. Energy Information Administration, better known as the EIA, projected demand for oil to continue to rise through 2050 and oil to remain the largest source of energy.

Occidental Petroleum is not only one of the largest upstream oil companies with sold acreage in Permian, but it also operates midstream and chemical businesses. Importantly, Occidental checks most of Buffett's boxes on his investment criteria, foremost being its financial fortitude and dividends.

Even before oil prices shot up in March, Occidental Petroleum had set down its priorities for 2022: Grow cash flows, cut down debt, and pay a sustainable and growing dividend. Having generated record free cash flow in 2021 and paring down debt worth $6.7 billion, Occidental increased its annual dividend payout by a staggering 1,200% in February.

Occidental has been firing on all cylinders since. It repaid 19% of its total outstanding debt, or nearly $4.8 billion in the second quarter alone. Having done so, Occidental has already surpassed its near-term debt reduction goal, paving the way for bigger dividends and share repurchases.

During Occidental's second-quarter earnings call, CEO Vicki Hollub said shareholders can continue to expect "gradual and meaningful" future dividend increases, and there's a possibility Occidental could return as much as $4 per share to shareholders in the form of dividends and buybacks in 2023. For perspective, Occidental's annual dividend payout even after its February hike stands at only $0.52 per share.

Buffett loves well-run companies with low debt, strong cash flows, and growing dividends. So should you.

Time to buy Occidental Petroleum stock 

As is typical of oil stocks, Occidental's stock price could fall if oil prices fall. Yet it's hard to find a reason to bet against Buffett on this one. Aside from opportunities in oil, Occidental is also betting big on carbon capture and storage, a market it estimates to be worth trillions of dollars and one that could add significant value to the company in the years to come.

In between, Occidental is turning out to be a strong capital allocator and a solid dividend stock. Whether Buffett eventually takes over the company or not, if you're an energy investor, you'll want to buy Occidental Petroleum stock on any dip.