Is there a particular reason that you are interested in dividends instead of total return? It seems you're already into investing and have plenty in index funds, so I'm curious why you're now interested in being on someone else's payout schedule.
I am concerned about cashing in on my total return assets as income early in FI. I would rather those keep growing and reap income from dividends. I know it's counter intuitive to think this way. How should I adjust that thinking?
You should realize that spending dividends
is cashing in on your total return assets. When a company issues a dividend, their stock price adjusts accordingly (along with the other changes happen during the day - it's rarely "exactly that amount"). The same happens when a mutual fund distributes a dividend. This shouldn't surprise you: the shares are a fractional ownership of the entity (company or mutual fund assets), and the entity is marginally worth that much less; if it paid out three cents per share, it has three cents per share less total value.
Now, I'm not saying companies shouldn't issue them - some companies have no way to use their cash on hand and decide that returning it to the investors is the best use of it. It's also worth noting that some companies have done some shady things to maintain their dividend, while one very well-respected company has never issued a dividend. Somewhere in between is probably the right mix for most companies.
(In the U.S., mutual funds
must distribute the dividends they receive - other countries have other laws, and some allow their funds to auto-reinvest the dividends without the end holder ever seeing them)
So, why are dividends so popular? Part of it is that some people don't realize it isn't free money. Others feel it's the best indicator of the future health of the company. There used to be a popular theory that dividend yield was what Warren Buffet looks for when he acquires a company (whether or not this is true, you don't have his kind of leverage anyway, so it's moot). There certainly exist periods of time when a dividend focus yielded better returns than the total market (and, conversely, there were periods where it didn't - you can't expect a free lunch in the market). There's also a convenient "bird in hand" theory here, too: with very few exceptions, once the dividend hits your bank account, it's yours.
Finally, the good reason for their popularity: legacy. Back before mutual funds were the popular method of stock investing for your average investor, individual stock picking was the order of the day. This was also well before the days of $2 trades, 100 free trades, or even buying to your dollar amount decided quantity; stocks were purchased in large lots with fairly healthy commissions. It just wasn't feasible to focus on total return in order to get a sustained withdrawal rate - selling enough to the SWR would have required an enormous savings for a modest stock-based income. The only realistic way to get a sustained 4% withdrawal from your portfolio was to have a dividend yield of approximately 4% - receiving those didn't cost you anything beyond the taxes on the dividends themselves. So people who wanted this as a form of retirement income bought stable, dividend-paying stocks (whether or not these 'beat the market', either in return or volatility, in this era is meaningless, as retail mutual funds - to say nothing of the index variety - weren't available as an alternative to most people).
Why do you feel it is counter intuitive to think this way? If you can live off dividends only then you never deplete your principle and will never have to worry about running out of money.
While the dividends do deplete the investment somewhat, "dividend yield from a well-diversified portfolio" is almost always a sustainable withdrawal rate, and rarely requires any math to do properly. That's a
huge advantage to the approach.