Is Dividend Investing Just An Illusion?

I read an excellent article about debunking dividend myth (canadiancouchpotato).  The author explains how dividend is not distribution of income but a return of capital. How investors have been trained to believe dividends are income and investors are happily to spend it.  However, selling shares provides them great anxiety even though both are essentially the same thing.  I am in agreement with the author, when a company issues are dividend it is essentially returning capital to its shareholders.  When a company pays a dividend its share price drops by the amount of the dividend. Also I agree with the author that one can create their own dividend by selling there own shares hopefully with a capital gain.  In these two cases dividend investing is just an illusion. 

The author also debunks that companies that offer dividends are better companies than non dividend payers.  I too am in agreement because no one can predict the future if dividend paying companies will outperform non dividend paying companies.  However studies have shown that dividend payers have out earned their non dividend payers in the past.  In addition, I agree that stock buy backs are better use of capital than dividends because stock buy backs have no tax consequences versus dividends.  In theory the less the stock outstanding the more profit per share the shareholder will receive.  Dividends just provides taxable return of capital. 

However I disagree with the author on reinvesting your dividends to buy more stock.  The effect of compounding is well documented.  Returning the capital back to the company to get more stock in theory may provide more earnings due to the investor having more shares.  In my opinion that investing is all about, earning as much profit as possible.  I do agree if a company cant invest the capital wising that should be a worry.  However, I suggest invest in companies that buys back its stock, has a good history of return on invested capital, creating profitable products and services and offer a dividend to shareholder from a growing free cash flow. 

Full disclosure:  I am a dividend investor but I do not have DRIP plans.  I reinvest all dividends into stocks I believe are cheap.