I have looked into dividend sponsored retirement. I have started a few threads here and know it is quite possible.
http://www.early-retirement.org/forums/f28/dividend-investing-do-you-get-a-3-yield-37716.html
As I looked into it further- the people which get a 4% yield (current) did not buy those companies when they yielded 4%. They bought them when they yielded less (2%) and by reinvesting dividends and accumulating shares and market performance their yields and payout was higher.
If I were to advise someone how to do this, they would need a 5-10 year time horizon... to verify payout was working AND to attempt to buy companies at a good part of their business cycle. I would not want to see someone w*rk, accumulate share value in mutual funds, then sell those mutual funds for stocks which pay dividends, then retire the next month. Too much risk which takes present market performance into account for a retirement decision which needs to last 30-50 years.
If someone had a 10 year timeframe, I would look for dividend payers which totaled about 50-75 stocks. Trying to stay diversified while also trying to have a solid portfolio, and a portfolio which focused on payout.
I would own 10-20 large companies which paid a dividend. Companies like Microsoft, PG, and GE come to mind (I have not looked at these companies stock pages in years, but last I checked, all paid a dividend).
I would get some preferred stocks and REITs to kick in some high yield too- probably 2-10 different holdings.
I would also look for 2-4 large companies which do not pay dividends but are sitting on a high amount of cash. Oracle used to be in this category, but they recently started paying a dividend. Look for large companies which have cash on hand could add some stability if other companies drop their dividend and you still need a payout to maintain income.
I would add about 10 foreign companies which pay dividends as well (noting that tax treatment of foreign dividends might be different).
I would add a few sector plays (like utilities or financials) but turn these stocks over as I think other sectors (like health care or cyclicals) looked better.
I would add about 20-40 small and mid caps which paid dividends and hold a smaller (relative) position in each of these companies.
If I owned 10 large cap, I would want 20 small cap positions (for example) and each of the 20 small cap positions would be maybe 1/4 the size of the position in the large caps.
A follow up thread to the one I posted would be interesting, as I would be curious how late 2008 changed anyone's outlook on the 3% yield, and also curious if any new lessons learned came from recent market activity.