Is generic-drug giant Teva Pharmaceutical (NASDAQ:TEVA) running out of things to buy? The company says acquisitions are still a major part of its growth plan, but after it announced a 17% increase in its dividend, you'd think Teva was shifting into the mode of a Johnson & Johnson (NYSE:JNJ) or PepsiCo (NYSE:PEP), returning a substantial portion of its profits to the shareholders.

Turns out, it can afford to do both. Teva is showing that sometimes you can have your cake and eat it, too.

Last year Teva generated $2.2 billion in free cash flow, which helped the company pay down debt it incurred by purchasing Barr Pharmaceuticals, while still increasing its stash of cash and short-term investments by 18%.

Launches of 19 different generic drugs, including Teva's versions of Shire's Adderall XR and sanofi-aventis' (NYSE:SNY) Allegra-D, and the reintroduction of Teva's version of AstraZeneca's (NYSE:AZN) Pulmicort Respules helped contribute to the strong cash flow, as did the growth of branded drugs, which sport higher margins.

Sales of Teva's multiple sclerosis treatment Copaxone were up 25% last year, holding its own in a crowded market that includes Biogen Idec's Avonex, which rose only 5% last year. Investors should keep their eye on Copaxone's sales in the coming year as oral medications from Novartis (NYSE:NVS) and Merck KGaA could hit the market soon and take market share.  

With all the cash, what's Teva going to buy next? Who knows. Teva is rumored to be in a bidding war for German generic-drug maker Ratiopharm, though its major opponent has apparently changed from Pfizer (NYSE:PFE) to Actavis Group. Management wasn't willing to comment. While Ratiopharm would make a nice addition, Teva has to be careful not to overpay if Pfizer decides it needs to make a major move into generics at all costs.

If Teva loses out on Ratiopharm, another possibility is to expand the company's branded-drug selection, which has become a healthy contributor to the company's revenue with the growth of Copaxone and the addition of Barr's women's health products.

Whatever Teva decides to do, given management's track record, investors should be confident in letting management use the cash to reinvest in the business -- at least some of it.

Johnson & Johnson and Pepsi are Motley Fool Income Investor picks. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day trial. 

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is an Inside Value pick. Novartis is a Global Gains recommendation. Motley Fool Options has recommended buying calls on Johnson & Johnson. The Fool has a disclosure policy.