Yes, divide after the foliage is halfway yellowed.

Definately add fertilizer when replanting. I like to add bonemeal (for future availablity) and a low nitrogen fertilizer.

I would also look for roots of other nearby plants that may be stealing nutrients.

The bulbs may indeed be hungering for a better soil to grow in. Instead of fertilizer at planting time, I suggest you use a good compost instead and be sure to water the bulb in well.
Soil wears out in time, its nutrients do not feed the bulb like it used to and unless they were on a regular feeding schedule they most likely are just worn out.

Lifting and replanting has solved many a problem such as this. Changing beds seems to work for some people, and I guess, some plants as well.

Our voluntter FAQ editor has some very detailed information of how to dig, divide, and replant daffodils. By all means, take a look.