This is the dilemma I deal with as well. Should I put my money in solid dividend payers or an index. If I put my money in all dividend stocks then I can get a higher dividend yield and receive more money without having to sell any stock. The downside is I am stock picking and I like the diversity and ease of just buying an index.
You are not receiving more money.
Take a look at stock prices when a company goes ex-dividend and you will see the price drops the amount of the dividend.
Some people try to argue that this isn't true because the share price doesn't fall by
exactly the amount of the dividend paid out, sometimes it's more and sometimes it's less, but this can be explained by the fact that during the rest of the time when dividends are not paid out, the share price moves up and down and all over the place. The market is reacting to new information about the company, sector, or market it is in. For example, a company might release sales results for the past quarter and the price moves up in anticipation on future earnings. When a share goes ex-dividend, these forces are still in play, and this is why the share price doesn't drop by
exactly the price of the dividend. That the share price drop isn't precisely the amount of the dividend paid out doesn't nullify the fact that the share price adjusts based on the dividend paid out.
When you get down to the nuts and bolts, here is what happens.
A company has earnings.
It then distributes some of those earnings to investors either as dividends or through share buy-backs, and retains the rest to grow the business. The same company with the same earnings can distribute 80% or 20% or any other amount of earnings and it will make
no difference to your total return how much is distributed.
The company can also distribute earnings as
a share buy back to boost up the price, so lower dividends don't mean the company necessarily invested more of their profits for (what some consider speculative) growth, it means there will be less shares in the company, but each share has increased in value. So again, it means nothing how much cash you get back in your hand as cash dividends.
The more they pay out in dividends, the less that is retained to grow the business, and therefore
growth is reduced by the amount that was paid out in dividends.
Dividends are not free money.
On top of this, by going with only high yielding companies, you face concentration risk through lack of diversification.
One more thing - "dividend investors" use backwards looking data, throwing out all the companies that intended to increase their dividend over time and failed, falely giving higher looking returns than in reality. This is called
survivorship bias. You can't know which companies will continue to successfully increase their dividends over time into the future.
The list of problems with dividend investing begins with a complete misunderstanding of what dividends are (generally mistaking them for earnings, which they are not), and then continues to confirm the fallacy with biases, leaving you exposed to risks such as concentration, and the risk of believing your money is somehow safer.
I'm just not real excited about saving my butt off to FIRE and then selling index shares during an unknown length bear market.
By spending dividends, you are already spending from your total return, the only difference is that someone else has decided how much you can spend down. If a company buy's back 4% of it's shares, the shares have gone up 4% in value. If you then spend it down, then it was no different whether it was paid out in dividends or not.
Dividends are arbitrary and have no meaning, yet you are attaching a false meaning to them.
Further information
https://www.cnbc.com/2016/12/08/dont-buy-in-to-the-dividend-fallacy-new-academic-paper-warns.htmlhttps://www.youtube.com/watch?v=UpXI_Vd51dA&t=9shttps://www.bogleheads.org/wiki/Why_did_my_fund_unexpectedly_drop_in_valuehttps://www.bogleheads.org/forum/viewtopic.php?f=1&t=258311https://www.forbes.com/sites/jimdahle/2018/11/11/five-reasons-to-avoid-focusing-on-dividend-stocks/#16394c797479https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/