Spending only the dividend forces me to conserve the principle. Am I getting this right?
No, you are not getting it right.
A bond has principle. The company eventually gives you back that money.
A stock does
not have principle. The company does not ever give you the money back.
If you really want to pretend it does, then the "principle" would be what you paid for the stock. Not the current value (whatever that is). Your original purchase price.
If you really want to understand it, Larry Swedroe has written a number of articles. Also Michael Kittes. Those are a couple of authoritative voices. Or you could just accept it when dozens and dozens of people here tell you that your thinking is wrong.
"Any withdrawal is depletion. Money isn't smart enough to know which one of its siblings (dividends, principal) took the hit."
The need for money is satisfied by the creation of wealth, not by the means through which the cash is distributed to you.
For those who say, "My main goal is income; capital appreciation is secondary." - Income and capital appreciation are interchangeable since they can be converted into each other.
Dividends and growth are fungible. If the corporate sector lowers its dividend payout ratio to fund increased internal reinvestment (capex, M&A, buybacks), real EPS growth will rise. If it lowers its internal reinvestment (capex, M&A, buybacks) to fund an increase in dividends, real EPS growth will fall. Assuming that the market is priced at fair value, and that the return on equity stays constant over time, the effects of the change will cancel, so that shareholders end up with the same return.
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Why is the Shiller CAPE So High? | PHILOSOPHICAL ECONOMICS
Buffett discusses how & why sell-off ("DIY dividend") is superior to paid-out dividends. BRK 2012 Annual Report, p.20-21
That dividends really should not matter is not an over-elaborated financial theory, but rather something closer to a mathematical identity. If a company pays out cash, that cash is no longer on its balance sheet. The book value of the company (its assets minus its liabilities) reduces by the amount it has paid out. Cash belongs to shareholders whether it is on the balance sheet or paid out in a cheque.
If shareholders want to raise cash, they can withdraw as much cash as they need – when they need it – by selling shares.