VCT dividends are up significantly compared to the first half of last year, according to research from the Association of Investment Companies (AIC).

The total amount of ordinary dividends during the six months to September 30 2011 was £73,889, up 36 per cent from £54,300 last year.

The highest performing VCT sector was the AIM, yielding an average of 9 per cent, while the generalist sector is delivering at an average of 6.4 per cent.

'Dividend generation has long been a feature of VCT strategy as it is a core tool in risk reduction,’ said Patrick Reeve, managing partner of Albion Ventures.

'Tax free income is clearly even more important now than ever, given the unusually high tax and low interest rates.’

The strongest individual VCT was the British Smaller Companies VCT, which is up a staggering 231 per cent in share price total returns, paying out a dividend of 43.75p per share over the last six years.

Stuart Veale, manager of Proven VCT, which was the second highest performer, up 186 per cent in ten years, claimed the tax-free dividends of VCTs were very attractive compared to other investments.

Despite the positive results, Annabel Brodie-Smith, communications director of AIC, warned that ‘VCTs are high risk and should be part of a balanced portfolio.’