A stock that wants to reward its shareholders with real cash returns does so through two methods: dividend payments and share buybacks. Each have their advantages, and certain investors favor one or the other depending on their particular investment goals. Dividends are obviously a great way to produce income from your investments, as those quarterly payments are cash in the shareholder's pocket that can then be used to pay for life's many expenses.

Share buybacks are valuable in their own right. When used properly, they can reduce the number of shares outstanding, thereby making each remaining share more valuable by boosting earnings per share. A company that does both is usually a great find, and energy giant ExxonMobil (NYSE:XOM) is one such company. However, share buybacks can be mismanaged, and if so, don't always work to the benefit of shareholders. This is precisely why ExxonMobil's share buyback strategy should be called into question.

Not all buybacks are beneficial
As previously mentioned, share repurchases can create value for shareholders when done well. At the same time, if management simply offsets share repurchases with an equal (or greater) number of option awards, then shareholders aren't actually better off.

ExxonMobil has spent a massive amount of money on share buybacks over the past several years, which is truly an impressive feat on the surface. Exxon repurchased $4 billion of its own shares in the most recent quarter, $5.6 billion worth in the first quarter, and prior to the second quarter, had bought back at least $5 billion of its own stock for ten consecutive quarters. Going further back, Exxon has repurchased $210 billion of its own shares over the past ten years, a sum greater than the entire market capitalizations of all but 11 members of the S&P 500 Index.

Looking beneath the numbers, though, we can see that Exxon's buybacks aren't all that accretive to shareholders. As of the 10-year period ended June 30, 2013, Exxon only reduced its total shares outstanding by about 2.2 billion. Clearly, something doesn't add up. It appears that Exxon's share repurchase program leaves a lot to be desired, as option grants are significantly affecting the true impact of the buybacks. The huge amount of money being allocated to share repurchases has come directly at the expense of dividend payments. Of the biggest oil companies in the world, Exxon's 2.9% dividend yield ranks as one of the lowest among its closest peers.

Other energy majors strike a balance
ExxonMobil has decided to rely heavily on share buybacks in its capital allocation program. While that's not a bad thing in and of itself, it is when a company isn't truly reducing shares outstanding. Other energy majors have struck a more favorable balance between share repurchases and dividend yield, and may be better choices for investors going forward. Meanwhile, other energy giants have struck a more favorable balance between dividends and share buybacks.

For example, Chevron (NYSE:CVX) repurchased $1.25 billion of its own shares during the first and second quarter of 2013. Chevron spends a relatively modest amount on share buybacks, but takes dividends more seriously than Exxon. Chevron yields 3.3% at its current price.

Even higher dividend yields than Exxon's or Chevron's can easily be found within the energy sector. Take BP (NYSE:BP), which has bought back just $2.9 billion of its own stock year to date. And, going forward, the company plans a relatively modest $8 billion share buyback program. Instead of relying on buybacks, the company offers its investors a much bigger dividend, which yields 5.2% at recent prices.

At this point, investors should seriously question whether Exxon's share repurchases are designed to truly increase shareholder value, or whether it's just a thinly veiled attempt to enrich executives. Other energy majors take dividends much more seriously than Exxon, and as a result, may be more worthy of your hard-earned investing dollars.

Bob Ciura owns shares of BP p.l.c. (ADR). The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.