I love cash. As an investor, nothing makes me happier than a company that returns money to shareholders, rather than spending it recklessly on a CEO's pet projects or an ill-fated acquisition. Historically, investors have often looked at a stock's dividend yield to identify these shareholder-friendly enterprises. But I prefer a slightly different metric -- one proven to further maximize investor returns.

A 2007 study in The Journal of Finance suggests that investors should also factor net share repurchases into the equation, through a metric called the net payout ratio. According to the authors of the study, this ratio not only identifies companies that are paying back investors, but also predicts future equity returns better than the dividend yield.

Let's crunch the numbers
To find the net payout yield, start by adding up all the cash the company spends on both dividends and share buybacks. Next, subtract its share issuances. Finally, divide the resulting number by the company's current market cap.

The ratio that you end up with represents the percent of each invested dollar that a company is returning to shareholders. This simple calculation handily allows us to adjust for shares issued through employee stock options and other forms of shareholder dilution. Some companies will spend a lot of money buying back shares just to counteract the dilutive effect of their stock compensation programs, without creating any value for shareholders.

Here are the net payout yields for a few companies in the office real estate investment trust (REIT) industry:

Company

Net Payout Yield (TTM)

Dividend Payments (TTM)

Net Share Repurchases (TTM)

Market Cap

Boston Properties (NYSE: BXP)

2.7%

\$324

(\$13)

\$11,343

2.8%

\$373

\$45

\$14,776

Liberty Property Trust (NYSE: LRY)

3.7%

\$213

(\$87)

\$3,455

Highwoods Properties (NYSE: HIW)

5.1%

\$121

(\$8)

\$2,240

Source: Capital IQ, a division of Standard & Poor's. Payout yield is author's calculation. All dollar figures in millions. TTM = trailing 12 months.

It's also interesting to look at the emphasis that each company puts on dividends versus stock buybacks:

How powerful is this payout?
Based on the analysis above, both Liberty Property Trust and Highwoods Properties look like potential buys for investors searching the office REIT industry for a stock with a solid net payout yield. Real estate investment trusts generally carry a high dividend because they are required to pay 90% of their earnings to shareholders to be exempt from federal taxes. As a result, REITs must constantly issue new shares to raise capital to grow the business, diluting shareholders in the short term, but hopefully creating future value as well. The bottom line is that REIT investors should realize that these high dividend yields don't come for free, because the REIT share price will take a hit from time to time.

Keep in mind that this data only looks at trailing-12-month numbers, so it does not correct for recent changes in a company's dividend or buyback policy. While dividends tend to remain fairly stable, share buybacks can vary substantially from year to year. Investors should also look at a company's dividend payout ratio to make sure the dividend is sustainable, and examine historical buyback patterns to ensure that the buybacks aren't a one-time event. If you can build a diversified portfolio with a few of these high yielders, healthy returns -- and plenty of cash -- are likely to follow.