Yes, interest/dividends is a popular strategy but it's not necessarily optimal.
For example, say you need $40,000 per year. You search and search and you find some awesome dividend producing index funds that produce 4% - you build up a $1 million portfolio and you are set for life! But then inflation kicks in and next year you need $41,000 but your funds only crank out $40,000. Slowly you eat more and more of your principal, while earning less and less interest. (Bad example in real world since the stache should grow, in addition to building funds, but I digress...)
Alternate - you need $40k as before. But instead of focusing on dividends, you just build a solid well-rounded portfolio of $1 million. It only produces 2% in dividends but it grows 5-7% each year. You ignore your dividends - reinvest them instead. Your stache grows 7-9% overall because of this. You take 4% of the principal out, but it's less than the growth per year. Who cares if you touched principal? Not you, you're rich!