I remember when traditional checking accounts paid 5% annual interest. Today, rates are 99% lower — Bank of America (NYSE:BAC) offers 0.05% annual interest on its checking accounts. This comes to mind when considering stock dividend yields — like the relatively high 7.17% yield that postage meter maker Pitney Bowes (NYSE:PBI) pays.

Such high dividend yields often can be a sign of trouble. And Pitney Bowes has its share of troubles. In the first quarter of 2011, it reported a decline in revenues and profits, and it missed analysts’ expectations. Its adjusted earnings per share of 42 cents were 21% below Zacks Consensus Estimate of 53 cents, and its $1.3 billion in revenue was down 2% from the year before.

Nevertheless, here are two reasons to buy the stock:

• Decent earnings reports. Pitney Bowes has been able to beat or meet analysts’ expectations in four of its past five earnings reports.
• Huge dividends. Pitney Bowes’ yearly dividend of $1.48 per share gives one of the biggest yields around at 7.17%.

Unfortunately, there are three reasons to pause in considering whether to buy this stock:

• Its valuation is very high given shrinking EPS. Pitney Bowes’ price/earnings-to-growth ratio is meaningless (where a PEG of 1.0 is considered fairly priced) because it is expected to shrink. It currently has a P/E of 13.48, and its EPS are expected to decline 2.4% to $2.20 in 2012.
• It is under-earning its cost of capital. Pitney Bowes is earning less than its cost of capital — and it’s getting worse. It produced negative EVA momentum, which measures the change in “economic value added” (essentially, profit after deducting capital costs) divided by sales. In 2010, Pitney Bowes’ EVA momentum was -2%, based on 2009 revenue of $5.57 billion, and EVA that shrank from $87.07 million in 2009 to $200.84 million in 2010 using a 9% weighted average cost of capital.
• Falling sales and profits and somewhat shaky balance sheet. Pitney Bowes has been shrinking. Its $4.8 billion in revenues has fallen at an average rate of 1% over the past five years, while its net income of $310 million has declined at a 14% annual rate during that period — yielding a thin 6% net profit margin. Its debt is growing more slowly than its cash. Pitney Bowes’ debt is up at a 2.5% annual rate, from $3.8 billion (2006) to $4.2 billion (2010). Its cash has grown quickly at 14.3% annual rate, from $302 million (2006) to $515 million (2010).

Pitney Bowes has lost half its value in the last decade, and at the rate it’s shrinking, there is little reason to think it will reverse that trend.

If you are thinking of investing in Pitney Bowes stock, consider that the decline in the value of the shares — they’ve been declining 14% so far in 2011 — would probably more than offset the high dividend yield.

On the other hand, if you think there’s a chance it could deliver a big upside surprise when it reports second-quarter earnings, now could be a great time to buy it.

Peter Cohan has no financial interest in the securities mentioned.