Toyota Rides High

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For the six months ended September 30, it's been a smooth ride for Toyota (NYSE: TM) and Nissan. Toyota's net income surged 23% on an 8% revenue increase. Nissan actually saw a 17% decline in profits, but this was in light of the fact that last year's results were skewed by the sale of a facility.

The profits come, in part, from strides in cost cutting. In fact, Nissan achieved operating profit margins of 11.3%, making it the most profitable of the major automakers. It's hard to believe that the company was on the precipice of bankruptcy in 1999 (an alliance with Renault SA of France, which owns 44% of Nissan, staved off disaster).

But, the bulk of the growth came from one place: North America. Popularity of the Corolla Sedan and Lexus GX470 and RX330 helped propel sales of Toyota in the US to over one million. In fact, in August, Toyota emerged as No. 3 on the continent, knocking out DaimlerChrysler (NYSE: DCX). No doubt, General Motors (NYSE: GM) and Ford (NYSE: F) are feeling uncomfortable looking into the rear-view mirror.

Toyota is also driving in Europe. The firm showed a 12.5% increase in sales -- helped with its Avensis sedan -- despite the anemic growth in the region.

Toyota expects the good times to continue, as it increased its guidance for the current fiscal year. The company expects pre-tax profits of approximately $7.3 billion, with profits at "all levels." As for Nissan, it did not change its guidance.

Could it be even better?

Toyota has amassed a war chest of over $20 billion in cash. The firm has wisely increased its R&D expenditures to enhance its competitiveness. Yet, it has a dividend payout of less than 1%. While it is important to have a cushion for bad times, it would be a nice gesture to give back some more cash to its shareholders.

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Tom Taulli is the author of six books on investing, including Investing in IPOs (Bloomberg Press), as well as a professor of finance at the USC School of Business (don't worry, he does come out of his ivory tower). You can reach him at tom@taulli.com.