If dividends will help you stay in the market, you should do that. If they don't help you stay the course when the world is falling, you should figure out a less ulcer inducing asset allocation.
When dividend investors have exhausted every other attempt at defending dividend investing, their final argument is that focusing on dividends offers a behavioural benefit that allows you to remain invested during market turbulence, therefore it still has value.
The problem with "feeling good" at the expense of facing reality is that one day there may be a sustained market decline and a long drawn out recovery and you will find that dividend focused shares are not a bond proxy and you will be drawing down and depleting your portfolio faster and for longer due to the fact that a recession hits earnings of all businesses and this will put you at a higher risk of running out of money in old age, whereas if you had faced reality, you would have had a more appropriate allocation of bonds which would have lowered this risk. The fact that fixed income assets have low returns does not mean they have no use, and assuming LICs are a bond proxy is a mistake of potentially devastating proportion.
Deluding yourself to avoid facing reality and consequently failing to prepare for potential risks is not a benefit, it's a downside.
I think it’s more specific to say that in a long bear market dividend stocks will have a harder time than non-dividend stocks, all else being equal. They have this semi-obligatory massive cash drain that forces them to seek debt funding during times when profits do not cover the dividend. That’s why today’s dividend stocks are often borrowing in the junk bond market to pay their dividends, paying 6-8% interest so their stock holders can collect 3-5%. What happens when the debt markets freeze up or require higher interest rates? A fire sale, that’s what! I remember 2005-2006 when AIG was a “dividend aristocrat”.
If anyone disagrees, they can put everything into NLY right now and retire on the 12% dividend yield. Good luck! It might work.
