Not only will you pay 15% tax on the dividend at tax time in April, by law, you "should" be making an estimated tax payment to the IRS for the quarter you receive the capital gains distribution, which is taxed at your nominal income tax rate (say 28% to be safe). From what I've read, this mid-year distribution is both short term and long term cap gains (not a dividend payment), so it's all taxable at 28%.
You can offset the capital gains by selling this fund or anything else you own for an equal loss, as long as you've owned it for more than 30 days. You still have to pay 15% on any dividends though, they are treated differently than cap gains/losses.
So you take the cash and try to time the market? If you're comfortable with that strategy, good for you, but I'd rather DRIP my divvies because the new pps will be much lower, pretty close to the ex-div date drop in the NAV, at least in most cases.
Kind of an automatic dollar cost averaging strategy, and it doesn't require the risks and homework that your method does. But if you do better your way, I'm happy for you! One thing superior with your tactics over mine is that you can decide how much cash to put into each ETF based on the current economic outlook and short term performance for each individual fund, you have much more flexibility.