Hughes' managerial reputation was tarnished following an unsuccessful 10-month spell at QPR in 2012 and the Welshman spent six months in the footballing wilderness before Coates selected him as Tony Pulis' successor.
Supporter opinion at the Britannia Stadium following the arrival of Hughes was decidedly mixed, but the 50-year-old won over the doubters last season, securing the club's best Premier League points total (50) and highest finish since returning to the top flight in 2008.
Coates is delighted that Stoke's decision has paid off, and told The Sentinel: "I was always confident about him, as was [Coates' son] John, and that is obviously why we took the decision we did to appoint him last year.
"But in saying that, it is still great to have that point proved.
"We always felt there was a very good manager there and his track record, once you took away a pretty short experience at QPR, showed that.
"But on top of all this is the added bonus of finding him to be a thoroughly decent person with whom we are enjoying a great working relationship."
Coates added: "I'm sure he was anxious when he came because things had gone a bit wrong for him and a lot of people were being critical so he's got to be pleased to have had such a good season with us.
"Maybe people are now realising that he is a good manager after all.
"But in saying that, we all know next season will not be easy, and I'm sure Mark would be the first to say that. You take nothing for granted in football."
