1. I understand the emotional appeal of dividends. However, this is mrmoneymustache.com, where we understand that making emotion-based decisions can lead to some pretty bad results, and so we attempt to adjust our minds to overcome our base emotional instincts. So a giant SUV might make us feel safe, but we aren't dumb enough to buy one; air-conditioning might make use feel more comfortable, but we aren't dumb enough to run it 24/7; restaurant lunches might make us feel pampered, but we aren't dumb enough to buy them every day. And dividends might make our income feel more steady, but we aren't dumb enough throw our money away into sub-optimal investments. So if I were you, I would put some effort into adjusting your brain.
2. To that end, dividend payouts may be more volatile than you realize. In the US, say you owned enough shares of VTINX (S&P 500 index fund) in 2007 to produce your necessary income of $1000 per month. Here's how that income would have changed over the next 6 years:
2007: $1000
2008: $1008
2009: $847
2010: $791
2011: $903
2012: $1088
2013: $1189
"$791" sure doesn't equal "about $1000", at least not in my mind.
In order to have generated that $1000/month income from dividends in 2007, you would have needed a stash of ~$630,000.
In contrast, if you had started with only $300,000 and simply withdrawn/sold 4% each year, that would have been sufficient to generate a much-more-steady $1000/month income for the entire time. And while your net worth would have certainly been volatile over that period, your balance at the end of 2013 would have been $341,846, or 14% greater than when you started.
3. This highlights that in the US at least, the current dividend yield of the stock market (~2%) is significantly lower than the assumed SWR (~4%). That means someone planning on living only on dividends has to amass a stash twice as large as someone living from total return. Which means the dividend investor has to spend many more years working than necessary, and will likely die with a giant pile of unused money.
4. In terms of tracking your progress, while you're working and saving, the chart of your increasing net worth will look much smoother than a chart of the stock market. Yes, you might see it drop, but the drops will be less steep and shorter than the stock market drops. For example, my net worth took a downward path between the end of 2007 and the beginning of 2009, but it had already risen up and reached a new peak by the end of 2009, while the US stock market price didn't return to its 2007 peak until 2013 (and over that period the amount I was saving each year was only about 10-15% of my total worth). Furthermore, during those times when you're seeing "no progress", you should be telling yourself that's exactly what you want to see, because it means that you're buying shares at great low prices.
