Toyota Motor Corp will buy back up to 1.89 percent of its shares worth up to 360 billion yen ($3.5 billion) in what would be the automaker's biggest buyback in more than a decade.
Toyota, expecting record profits for the financial year ending March 31, is returning cash to shareholders and boosting its return on equity after its cash pile expanded to 1.8 trillion yen as of end-December.
The world's biggest automaker said on Wednesday it would sell 30 million shares to Japan Trustee Services Bank for a token sum of 1 yen per share, with the dividends used to fund a new foundation to support the auto industry's development and environmental protection.
The remaining 30 million shares will be cancelled.
"We want to reward our shareholders through this buyback and cancellation," Toyota spokesman Ryo Sakai said.
Toyota, helped by a weaker yen that boosts the profitability of its exports, has forecast a record 1.9 trillion yen net profit for the year to end-March.
The buyback is the first for the company in five years and its biggest since 2003, when it paid around 390 billion yen. It follows similar moves by several Japanese companies, including Canon Inc <7751.T>, to boost return-on-equity, an indicator that is lower among Japanese corporations than the global average.
Some analysts said Toyota should have invested the extra cash to expand sales and production.
"At a time when it's no longer special for the biggest car makers to sell around 10 million vehicles a year, we want to see how Toyota will make investments to take charge in the industry," said Satoru Takada, senior analyst at industry research firm TIW in Tokyo.
Toyota and its group companies aim to sell 10.32 million vehicles in 2014, up 4 percent from last year. It has said it does not plan to build any new factories over the next two years after a rapid expansion prior to the 2008 financial crisis led to huge losses.
The share buyback plan is subject to approval by an annual general shareholders' meeting in June, the company said.
The shares will be purchased after the shareholders' meeting and no later than March 26, 2015. The stock closed up 1.1 percent on Tuesday at 5,621 yen, prior to the buyback announcement.