That spindle appears to have been extremely hot from the picture, unless that's a shadow. If it has been hot enough to turn blue, I would not trust it at highway speeds.
But if you want to use it, start with some new bearings and races. Try the bearings on the spindle. They should slip fit with minimal up and down play. Usually a spindle will wear on the bottom when a bearing spins. If the underside is worn, another strike against it.
The races must be a press fit inside the hubs. If the race is loose, the hub must be replaced.
Dimpling with a punch is not going to be a long term fix.
As for setting the preload, I snug the nut down while turning the rotor. This is just to seat everything. Then back off, and tighten just enough to take out the slack and get the cotter pin in the first available notch without having to back off.
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Today's Featured Article - Case Farm Equipment - by Jeremy Sweeten. My name is Jeremy Sweeten and I am currently a junior at Purdue University. I am takin a dual major in Agriculture Systems Management and Agronomy. I am from North Central Indiana, Miami County to be exact. My dad teaches for Marion Community School Systems an outdoor lab called Asherwood. We live there to manage the place. They just happen to have a Case 311 with a Triple Range transmission. I grew up mowing, pushing snow, and hauling maple sap with it. In 1986 my parents bought an old,
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