It's that time of year when Wall Street analysts start adjusting their predictions, and one dividend-paying stock, in particular, is getting a lot of positive attention.

Abbott Laboratories (ABT -1.65%) reported fourth-quarter earnings on Thursday, Jan. 26. Since then, Sanford C. Bernstein, Raymond James, Stifel Nicolaus, and Barclays have all raised their price targets on the healthcare conglomerate. The highest estimate, from Bernstein, implies a 19% gain from its latest closing price.

Is Abbott Laboratories a great dividend stock to buy, as Wall Street price targets would suggest? Let's weigh its weaknesses against its strengths to find out.

The bad news about Abbott Laboratories

Sagging demand for COVID-19 diagnostics and a strengthening dollar caused total sales to contract 12% year over year during the fourth quarter of 2022. A combination of foreign exchange headwinds and more weakness from COVID tests are expected to move the company's bottom line in the wrong direction this year, too.

  2021 2022 2023 Estimates
Revenue $43.1 billion $43.7 billion N/A
EPS (GAAP) $3.94 $3.91 $3.05 to $3.25
EPS (adjusted) $5.21 $5.34 $4.30 to $4.50

Data source: Abbott Laboratories. EPS: Earnings per share; GAAP: Generally Accepted Accounting Principles. 

If you could receive a relatively high dividend yield, it would be easy to look past the company's contracting profits. Unfortunately, Abbott Laboratories stock offers a 1.8% yield at recent prices. That's only slightly better than the average dividend-paying stock in the benchmark S&P 500 index.

Reasons to buy Abbott Laboratories

If we exclude COVID-related testing revenues and the effects of foreign exchange, Abbott reported 2022 sales that grew by 5.4% year over year.

Viewed on a longer time frame, Abbott's performance is hardly anything to complain about. Management's GAAP EPS estimate for 2023 is miles above what the company was reporting before the pandemic. In fact, the midpoint of the guided range implies earnings growth at an 11.2% annual rate during the four-year period that ends on Dec. 31, 2023.

Abbott doesn't offer a terribly attractive yield at the moment, but the company's long-term investors aren't complaining. This well-diversified conglomerate has raised its payout by 264% over the past decade.

A diverse range of new growth drivers could allow Abbott to make some big dividend bumps in the years ahead. For example, the FDA recently approved Navitor, a minimally invasive transcatheter aortic valve implantation system for folks with severe aortic stenosis where open-heart surgery is too dangerous.

Abbott's next-generation constant glucose monitor (CGM), the FreeStyle Libre 3, earned FDA clearance last May. More than 37 million Americans are living with diabetes, according to the U.S. Centers for Disease Control and Prevention (CDC). Many still monitor their blood sugar with finger sticks and indicator strips, but this outdated method is far from ideal. Soaring demand for a better way to monitor blood sugar pushed U.S. FreeStyle sales up to about $1.1 billion in the fourth quarter.

Abbott doesn't have the U.S. CGM market all to itself, but there are a few reasons we can expect it to maintain a leading share. Last December, the FDA granted clearance to the G7 device from Dexcom (DXCM 1.69%) which is Abbott's lead competitor in the space.

The G7 is smaller than Dexcom's previous device, but it's still significantly larger than Abbott's FreeStyle Libre 3 device. With a long lead on a larger CGM from its competitor, diabetes care could continue driving growth at Abbott laboratories for many years to come.

A smart buy now

Declining demand for the COVID-19 tests that drove growth in recent years is a powerful headwind. Luckily, the company runs a well-diversified operation that can overcome the challenge. Investors who buy shares of Abbott now and hold them over the long run have an excellent chance to come out ahead.