I'm a dividend investor who's thinking of jumping ship.
Firstly I'm in the UK (and my gains and income are fairly efficiently tax wrapped) so the tax advantages of capital gains don't really apply to me.
I'm also not that concerned about my disappointing medium term market performance. As others have pointed out this has a lot of the symptoms of the end of a bull cycle. One of those symptoms is growth companies return more. We're factoring in over optimistic growth forecasts. So I've underperformed compared to the index, but on the other hand I'm buying cheap-ish income, certainly compared to growth stocks.
My dividend stocks are also yielding around 5%. If I retire when the income covers the expenses then this will be with a 20% smaller pot than an index fund. I may not be able to retire on that for reasons given below, but it's still something to be borne in mind.
So a disadvantages of dividends are the complexity. Reinvesting, which I have to do for US shares and index funds, is a pain as is investing sums that I put into my accounts. If I have 1, 2 or 3 index funds it's just allocate the money to the fund. There's no investment step before hand which means that they will get invested more quickly and with less stress overhead. Also the complexity will go on in retirement. This will be fine when I'm relatively young, but as I get older and let's face it my cognitive ability goes down, it may become a pain. However collecting dividends when old is relatively easy, selling although still easy will still be more of a chore. But on the whole index investing looks easier through the piece.
I also dislike the idea of choosing stocks. I've long ago made my peace with the idea of being worse than the market in choosing stocks. And here I am choosing stocks - they are diversified at least.
The comparative flexibility of index funds is also quite compelling. My younger wife is paying into a public sector pension, and is unlikely to want to keep working if I retire - in fact I could quite see the opposite. So either I have to wait for her early retirement to kick in, which won't be early retirement for me, or we need to sell more shares at an early stage to pad out the time until her pension comes. A dividend retirement strategy is fine with share sales late in your retirement, but it bombs out early in retirement. So it's either cash or index funds. However an index fund strategy deals with that in its stride.
Talking about a younger wife, she's very likely to outlive me. And she doesn't pay much interest in investments and already has investments in an index. The maintenance of a dividend strategy - even finding another home for money from a buy out - may be harder than an index strategy which just involves selling the right amount.
Looking through the dividend threads here there's one thing that I hadn't considered which is dividend cuts. As retirement will probably be around the time that dividends cover expenditure then a dividend cut will be painful. So that means having a slightly higher dividend stream than necessary to cover the expenses as across a diverse portfolio you have to expect companies to cut and restore. If there is a downturn, as with Covid, then a number of companies will cut at once - then the margin of error is gone and you're selling shares in a downturn so magnifying losses. This also happens with an index approach but they're also selling when the markets up and sideways. I have been following an High Yield Portfolio approach (it's a rather British thing) and also following retirees on there and they don't seem to sweat these things or to sell shares, instead keeping a couple of years expenses in the bank and dip in as they need to and replenish when the fatter times return (and if fat times don't return BOTH approaches are in trouble). Now this is fine, it's part of the allocation but it's extra cash compared to the 4% route.
But dividends still have a pull. My investments are in order to have income in my non working years. And companies who have a history of understanding that are more aligned to that purpose than those who are using the profits to buy overpriced emerging competitors or to invest breathtaking sums in unproven technologies. Those companies are for the capital growth speculators, and I'm after income.
I'm sure that there are many non dividend payers who will eventually mature into dividend payers, and others who will get bought out and release the profits that they aren't sharing with me; but on the other hand how many of these non dividend payers are squandering their profits. Also dividends don't lie (well, lie less) as there has to be some cash on hand to pay these dividends. The dividends could be borrowed in some way, but that doesn't last. Growth stocks can lie, and towards the end of a bull market are punished if they don't lie.
There's one other psychological thing. Growth only matters when you sell, dividends are in the bank. Saying that you've grown 20% won't matter if it falls 30% tomorrow. While these sharp reverses are much less likely on an index, they still can happen - and this can devastate you in the first couple of years in retirement. The dividends can't be taken back.