But the costly fallout from the emissions cheating crisis also prompted the firm to announce a cap on executive earnings, in a major departure from Volkswagen's notoriously generous pay packages.
Under the new rules, payouts will be more closely linked to the group's financial performance with the chief executive's remuneration limited to 10 million euros ($10.5 million).
Other board members will see their annual pay capped at 5.5 million euros, VW said after a meeting of the supervisory board at its Wolfsburg headquarters.
The changes come as VW aims to clean up its image after it admitted 18 months ago to having installed software in 11 million diesel engines worldwide that could dupe emissions tests.
In a sign that the tide is turning, the carmaker reported a net profit of 5.1 billion euros ($5.4 billion) for 2016, recovering from a stinging 1.6-billion-euro loss in the aftermath of the cheating revelations in 2015.
"While the past fiscal year posed major challenges for us, despite the crisis the group's operating business gave its best-ever performance," chief executive Matthias Müller said in a statement.
The VW group - which includes the brands Porsche, Audi and Skoda - beat analyst expectations with record revenues of 217.3 billion euros in 2016, up nearly two percent on the year before.
Underlying or operating profit rose to 7.1 billion euros, from a loss of 4.06 billion in 2015, it said.
Despite the damage to its reputation because of dieselgate, the group delivered a record 10.3 million vehicles in 2016, driven by strong demand in Europe and the Asia-Pacific region.
The result meant VW overtook rival Toyota to become the world's top selling carmaker.
For 2016, the group said it planned to raise dividend payouts from 0.11 euros to 2 euros for ordinary shareholders, and from 0.17 euros to 2.06 euros for preferred shareholders.
Looking ahead, VW said it expected the upward trend to continue in 2017, pencilling in a four-percent rise in revenues while car sales look set to increase "moderately".
"As the figures show, Volkswagen is very solidly positioned in both operational and financial terms. This makes us optimistic about the future," Müller said.
But Volkswagen isn't out of the woods yet.
The dieselgate admissions triggered mass recalls and a sea of legal complaints, pushing VW into the red for the first time in more than 20 years in 2015 due to the provisions it had to set aside to cover the costs of the crisis.
The group on Friday said it added another 4.4 billion euros to the pot in the last quarter of 2016, bringing the total amount set aside for re-fits, buy-backs, fines and compensation to 22.6 billion euros.
Volkswagen took a major step towards resolving some of its legal woes last month when it agreed to plead guilty to criminal charges in the United States, including fraud.
The group has so far committed to paying out more than $22 billion in fines and compensation to drivers, dealers and authorities in the US, where some 600,000 cars were equipped with the defeat devices.
But it has not offered any compensation to the millions of European drivers affected, to the dismay of EU officials who have piled pressure on VW to show the same generosity as across the Atlantic.
US and German investigators meanwhile are still trying to find out whether top executives knew about the scam before it became public knowledge, something VW has always denied.
To help it turn the page on dieselgate, VW has embarked on a massive revamp.
It plans to slim down by shedding some 30,000 jobs by 2020 as well as shifting its focus to new, cleaner technologies such as self-driving and electric cars.