I don't think this is the main problem. For instance it's an issue that doesn't apply to turkish lira. Depreciation of the underlying asset is the problem.
My grandmother came to own controlling interest in a public utility over a long period of time. She lived on the dividends and passed the proxy and shares to her sons without having diminished it. Dumb? You telling me you never held shares from a bad trade and just collected the dividends until the thing recovered? Not once? Uh huh.
It might work in some countries if you have time (i.e. 25 years+) to wait during drawdowns. In my country we don't have any tax on capital gains. However dividends are taxed 35%.
I did buy such a stock once, at $30. Sold it at $15. It went to zero thereafter. BTW, it was highly recommended by Morningstar, the worst stock pickers in the whole goddamn world, for most of that time.
What about buying blue-chip, "safe" stocks with high dividends. Isn't that what the Dow Theory is about? That the high-d stocks will eventually rise in price (and the d yield go down)? Undervalued blue-chips, in other words.
An earlier poster nailed this on the head by saying they are not normally sustainable. Either that or there is significant risk involved. Also, price will get crushed if the dividend gets cut.
Here is my favorite moron high yield stock - PHK (PIMCO High Income Fund). It has a yield of 12.31%. It is a leveraged CEF with a premium of 39.44%. No CEF is worth a premium, let alone 39.44%. High yield, leverage and high premium makes it a 3 time loser.
Good analysis of Annaly Capital by Hugh Hendry http://www.eclectica-am.com/pdf/EAMF/reports/EAMF1002.pdf
I was going to buy pengrowth energy trust a few years back which has always had a high dividend. There are additional taxes on the dividend though because im outside of canada which put me off.