I think the OP has a good question that hasn't really been answered.
There are good points about lack of diversification with just dividend stocks.
But back to the question.
So 2% of 1M is $20,000
Does that change to $14,000 if it drops to $700,000?
I do not know the historical data for VTSAX. But I think strong companies try to hold their dividend in terms of payout per stock constant or increasing. Like .30 per share per quarter. 38, 42, 47, 47 cents looks like the VTI payout at the 6 month mark the past 4 years.
http://m.nasdaq.com/symbol/vti/dividend-historyFinding info that covered more years would be helpful.
Assuming dividend price per share is held constant the $20,000 would be relatively constant. This is only true if the companies keep the payout constant & you didn't sell any shares. So $20,000 on the now $700,000 portfolio is more like a 2.8% return. Yeah! (sarcastic) at least it's still $20K but your net worth just got pummeled.
Of course ultimately you would hope your stocks come back to $1M and your dividend % will drop back to 2%.
Can anyone confirm this is how it works as I think this is the OP's question?
I have some dividend shares in a small risky energy company. (Don't judge it's a small amount of fun money.) They cut their dividend in 1/2 to keep more capital in the company. Not a good sign, & it happens, but from what I understand slashing the dividend payout would be less common in a well diversified ETF.
I'd be curious to know how much dividend payouts dropped in 2008? Did they drop in dollar amount? They might have even rose in % amount briefly.