Pre-tax profit before tax increased 6.1% to £661.2m for the year to March 28, beating City expectations of £642m. Group sales marginally increased 0.4% to £10.3bn.
While like-for-like sales in its food arm increased 0.6%, sales of general merchandise including its clothing arm, fell below expectations with like-for-like sales down 3.1%.
It was good news for shareholders as the retailer said it would increase its dividend by almost 6% to 18p and pledged to buy back £150m worth of shares in the next financial year.
Marc Bolland, the M&S chief executive, said: "In food, we had an outstanding year in a difficult market. In [general merchandising], we significantly increased the gross margin, and, while sales performance was below our expectations, we returned to growth in the fourth quarter.
"We continued to control costs and capital expenditure tightly, resulting in significantly improved free cash flow."