For me, the question of income investing vs total return boils down to two things: (1) is the dividend causal? I.e. does the fact that a company pays a dividend result in it being more stable and profitable? Do dividends predict future returns for the company? As far as I can tell the answer is no as dividends don't appear in predictive models (e.g. Fama/French) except as they are correlated to value.
For me, it all boils down to the fact that, because many dividend payers don't fluctuate their dividends much (since many dividend payers aren't paying out 100% of cash flow/profits each year), I'm not as directly impacted by the portfolio value changes - both gains and losses.
(2) How do you amass a large dividend portfolio (outside of retirement accounts) during the accumulation phase without losing substantial amounts to taxes every year?
I can't answer that without involving my retirement accounts. Despite my love affair with dividends, I do have a large amount of my overall portfolio in capital growth-based securities (mostly foreign funds/ETFs) which have low enough yields to not put me in the poor house paying taxes each year on them.
My current cut-off regarding dividend paying holdings:
Qualified Dividends - if the yield is roughly less than 3%, then it's held in my taxable account. Any qualified dividend payer yielding more than that, goes to tax-deferred.
Non-qualified Dividends/interest - if the yield on a non-qualified dividend holding is roughly less than 1.5%, then it's held in my taxable account.
Foreign Taxes - as noted in
my post in the other thread, I have 2 spreadsheet tables set up to compare which of 2 investments should be held in which account, depending on what % of the dividend is qualified, as well as what % foreign taxes are withheld. Generally, if the foreign taxes are 15% or more, it's held in my taxable.
Payment-in-kind shares - All holdings that issue shares in lieu of dividends are held in taxable (since they typically aren't taxed until you sell the dividend shares). A rare few stocks offer this, along with a few preferreds.
Tax-free distributions - There are a few piles of ashes (laughingly referred to as mortgage/finance REITs) left over from the 2008/2009 meltdown and are slowly trying to regrow from the disaster and (sometimes) reverse splits they did to try and barely tread water. Names like RAS and SFI. The "good" thing is that they are allowed to use their MASSIVE carryover losses to offset future profits. That means not only their common, but their preferreds as well, have distributions that are considered to be return-of-capital and non-taxable, since they don't have any taxable income with their carryover losses (and IRS regulations state that a REIT/mREIT must distribute at least 90% of it's taxable income each year....if they have no taxable income, it's considered a return of capital). And their preferreds have coupons of 8%-9%, and trade slightly under par - meaning you can pick up a preferred yielding 9% TAX FREE (with reduction in capital with each dividend payment).
MLPs - Somewhat related to the previous paragraph, these are more common/mainstream ones, which allow you to reinvest distributions this year without much of a tax-hit now, and then realize a capital gain later on when you sell it (in a lower income tax bracket).
Some new money I'll be freeing up in the next month or two will go almost all to Muni ETFs (for my taxable account holdings).
Overall, by including some preferreds and a majority of the business development companies, my overall gross portfolio yield for my taxable account is about 2.92%. if I factored in the effect of non-taxable MLP and other distributions, the net taxable effect is lower. And most of that is qualified dividends. So the tax hit isn't too unmanageable.
When I do retire, I'll simply reallocate the higher yielding qualified dividend payers to my taxable accounts to help provide more cash flow (while only being taxed max 15%) and keep the high non-qualified dividend payers in the tax-deferred.