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 - Fasteners: The Nuts and Bolts of Nuts and Bolts - by Curtis Von Fange. The nuts and bolts of nuts and bolts is an interesting and essential piece of knowledge that applies to our older tractors. An improperly torqued capscrew on an engine head or a shear bolt that is too hard on the driving shaft of a bushog can create havoc and make an expensive and uncalled for repair. Let�s examine the purpose and design of these fasteners in order to ensure their proper use. Fasteners are probably one of the aspects of mechanics that is given the least amount of thought.
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