Personally, I think you are concentrating on buzz words more than on the principal behind them (no offense intended). Lets us forget about dividends and concentrate on the cash behind them. This is what justifies, in part, MSFT's valuation. MSFT has the capabiltiy to pay dividends with high margins and ample retained earnings, but the street is content with thier healthy cash flows and competitive niches. To prove my point as to how the street values dividends as compared to a true growth company (with the implicit cash available to pay dividends but does not), let us take a look at the electric utility industry. This entire industry traditonally pays dividends, has (had) a protected market (with regulated margins) and very healthy, predictable cash flows. Their valuations are considerably lower than that of MSFT's. The only significant difference is limited growth through regulation (that is a big difference though! - well maybe that is not a good comparison, but I'm sure you get the picture). Philip Morris is another example, a cash rich diversified company without as many regulatory hurdles, that paid dividends yet is valued lower than MSFT. You see, growth potential combined with cash (which aids in further growth) is what demands a higher valuation. There are some cyclical companies which have broken out of thier stereotype into the high growth arena (ex. INTC - cornered the CPU market and Enron - cornered the energy, fuel supply merchant banking, and soon the electricity markets) that still pay some dividends. If you notice, although these stocks are stellar performers, their valuation is still lower than the pure growth plays. In many ways that is good for the novice investor, though . The cheaper you get a good stock, the better. The antithesis of this is NSCP. The market has factored in to its stock explosive growth, to the extent that you must pay 400 times nest years expected earnings. It is the growth potential (the Boom/Bust cycle and euphoria - a lack of perfect information) which fuels this valuation.
Some books that I recommend:
The Alchemy of Finance - George Soros, difficult reading but highly educational. His second book, which is much easier to wade through is good as well.
Stock Market Logic by Norman Fosback - the bible, chock full of historical data and common sense.
What Works on Wall Street - James O'Shaugnessy, he takes 43 years of historical data and backtests all of the popular investment styles in order to judge the validity and succes rate of each one. The winner of course is a variation of value added growth (looking for cheap growth companies) and of course picking those companies with good cash flows, price to sales ratio, and decent capitalizations (this prevents wanton market manipulation due to smaller floats).
A soft, but helpful plug here. If you have a Pentium computer, my web site is chock full of information (1,200 pages and 67,000 links), and I will attempt to value (using DCF matrices) at least one company per month in my magazine.
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