High-profile U.S. hedge funds continue to bet against Canada’s big banks. They feel rising interest rates and slowing real estate markets will lead to big writedowns.

However, the big banks, including CIBC, have plenty of capital to weather downturns in the Canadian economy. CIBC’s recent expansion into the U.S. also improves its long-term earnings potential and should let it keep raising its dividend.

CANADIAN IMPERIAL BANK OF COMMERCE $111 (Toronto symbol CM; Income-Growth Portfolio, Finance sector; Shares outstanding: 444.1 million; Market cap: $49.3 billion; Dividend yield: 5.0%; Dividend Sustainability Rating: Highest; www.cibc.com) is the smallest of Canada’s big five banks, with assets of $614.6 billion.

• Current bank formed in 1961 through the merger of Canadian Bank of Commerce and Imperial Bank of Canada.
• Has paid dividends continuously since 1868
• CIBC has also increased its dividend 18 times since 2011

The bank last raised its quarterly dividend with the April 2019 payment. Investors now receive $1.40 a share instead of $1.36. The new annual rate of $5.60 yields a high 5.0%. In the latest quarter, dividends amounted to 45.1% of CIBC’s earnings. That meets its goal of paying out 40% to 50% of its earnings as dividends.

In June 2017, the bank acquired Chicago-based PrivateBancorp Inc. for $6.6 billion in cash and stock. That firm mainly lends to small and medium-sized businesses.

Thanks partly to that purchase, CIBC’s overall revenue rose 33.5%, from $13.4 billion in 2014 to $17.8 billion in 2018 (fiscal years end October 31). If you exclude costs related to the PrivateBancorp acquisition and other unusual items, CIBC’s overall earnings jumped 52.4%, from $3.56 billion in 2014 to $5.43 billion in 2018. Due to the additional shares outstanding, earnings per share rose at a slower rate of 36.6%, from $8.94 to $12.21.

In the quarter ended January 31, 2019, CIBC’s earnings fell 4.9%, to $1.36 billion from $1.43 billion a year earlier. Due to more shares outstanding, earnings per share decreased at a faster rate of 5.3%, to $3.01 from $3.18.

Earnings from Canadian retail banking (48% of the total) fell 4.0% in the quarter due to a higher provision for credit losses and lower fees. The Canadian commercial banking and wealth management business (24%) reported 1.6% higher earnings. That gain is due to the strong demand for business loans and lower expenses.

CIBC’s U.S. operations (contributing 13% of total earnings) saw its net profits rise 24.3% on higher volumes and greater assets under management for its wealth management business. Earnings from securities trading (15%) fell 37.6% on lower revenue from equity and debt underwriting.

Overall revenue in the quarter increased 2.4%, to $4.57 billion from $4.46 billion a year earlier. However, loan-loss provisions soared 120.9%, to $338 million from $153 million. That’s due to additional provisions for all of its business units. Despite that jump, bad loans amounted to just 0.33% of CIBC’s total loans as of January 31, 2019.

As well, the bank is also benefiting from its cost cutting plan. CIBC’s efficiency ratio (non-interest costs, such as employee salaries, divided by revenue—the lower, the better) improved to 54.4% from 55.1% a year earlier. The bank aims to lower its efficiency ratio to 52.0% in 2022.

A big part of those gains are the result of CIBC’s recent investments in its digital banking platforms. It now has 2.7 million active mobile uses, up 33.5% from a year ago.

CIBC will probably earn $12.34 a share in 2019, and the stock trades at a low 9.0 times that forecast.

CIBC is a top pick for 2019.