What kind of power supply is best for IoT application?
I think IoT devices use some kind of transformerless power supplies
  (am I right?) but I have voltage drop problem with them.


\$\color{red}{\text{THIS IS A DANGEROUS (and actually pointless) UNDERTAKING}}\$

To make a transformerless power supply capable of delivering 500 mA at 5 volts is fraught with problems. Even if your supply stayed steady at 220 volts AC at (say) 50 Hz, the only feasible technology is to use a dropper capacitor. This would then feed a bridge rectifier and zener diode followed by a a DC smoothing circuit.

However, the dropper capacitor required to be able to deliver 500 mA at the load is going to be about 15 uF: -



I've shown a 250 volt AC rated capacitor to give it sufficient headroom in case of over-voltage situations but, this is by no-means a suitable solution because if the capacitor fails you would also need a fuse. This area of the design is crucial AND the only suitable capacitor I can find is this one: -



It's probably going to be about twice the size of a small flyback transformer. Anyway, here's the graph of the output voltage over time: -



So it's producing 5 (ish) volts when the load is 10 ohms (500 mA). But look how big the output capacitor needs to be: 10,000 uF and will probably have a voltage rating of 6.3 volts: -





Conclusion

\$\color{red}{\text{It's an utterly pointless and dangerous undertaking - use a small flyback converter}}\$


  What kind of power supply is recommended to power my 5V/500mA circuits


Use a safe and reliable flyback converter.